Dexus (ASX: DXS)
ASX release
15 August 2018
2018 Annual Report
Dexus provides its 2018 Annual Report which will be mailed to Security holders who have elected to
receive a copy on 30 August 2018.
For further information please contact:
Investor Relations
Rowena Causley
+61 2 9017 1390
+61 416 122 383
rowena.causley@dexus.com
Media Relations
Louise Murray
+61 2 9017 1446
+61 403 260 754
louise.murray@dexus.com
About Dexus
Dexus is one of Australia’s leading real estate groups, proudly managing a high quality Australian property portfolio
valued at $27.2 billion. We believe that the strength and quality of our relationships will always be central to our
success, and are deeply committed to working with our customers to provide spaces that engage and inspire. We invest
only in Australia, and directly own $13.3 billion of office and industrial properties. We manage a further $13.9 billion of
office, retail, industrial and healthcare properties for third party clients. The group’s $4.2 billion development pipeline
provides the opportunity to grow both portfolios and enhance future returns. With 1.7 million square metres of office
workspace across 53 properties, we are Australia’s preferred office partner. Dexus is a Top 50 entity by market
capitalisation listed on the Australian Securities Exchange (trading code: DXS) and is supported by 27,000 investors
from 20 countries. With more than 30 years of expertise in property investment, development and asset management,
we have a proven track record in capital and risk management, providing service excellence to tenants and delivering
superior risk-adjusted returns for investors. www.dexus.com
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Dexus Funds Management Ltd ABN 24 060 920 783, AFSL 238163, as Responsible Entity for Dexus (ASX: DXS)
Strong foundations
Positive momentum
Annual Report 2018
years
being listed
as Dexus
Strong Foundations.
Positive Momentum.
We have established strong foundations
that have enabled us to consistently
deliver on our strategy, and positive
momentum across the business is
enhancing our position for the future.
years
being listed
as Dexus
It has been 10 years since we fully
internalised our management structure
and started on the journey towards
becoming one of Australia’s leading
property groups, today known as Dexus.
See our journey on page 3.
2018 ANNUAL
REPORTING
SUITE
Dexus presents its 2018 Annual Reporting
Suite for the year ended 30 June 2018.
2018 Annual Report
Provides a consolidated summary of Dexus’s
performance, Dexus’s Consolidated Financial
Report, Operating and Financial Review,
and Corporate Responsibility & Sustainability
(CR&S) performance.
2018 Combined Financial Statements
Comprises the Financial Statements for Dexus
Industrial Trust, Dexus Office Trust and Dexus
Operations Trust. This report should be read in
conjunction with the 2018 Annual Report.
2018 Sustainability Performance Pack
Provides data and detailed information
supporting the results outlined in the 2018
Annual Report available in the online 2018
Annual Reporting Suite at www.dexus.com
2018 Annual Results Presentation
Provides an overview of Dexus‘s operational
and financial performance available in
the online 2018 Annual Reporting Suite
at www.dexus.com
2018 Property Synopsis
Provides an overview of the Dexus property
portfolio, available in the online 2018 Annual
Reporting Suite at www.dexus.com
The 2018 Annual Reporting Suite is available
in hard copy by email request to ir@dexus.com
or by calling +61 1800 819 675.
www.
dexus2018.
reportonline.
com.au
Dexus 2018 Annual ReportOverview Highlights
Growth in distribution
and AFFO per security
5.1%
Realised trading profits net of tax
$36.6m
Property portfolio
valuation uplift
$1.2bn
Progressed minimum 5 star
NABERS Energy rating across
89%
of the office portfolio towards
target of 1,000,000sqm by 2020
Return on contributed equity
7.6%
Office portfolio like-for-like
income growth
+4.5%
Achieved gender pay equity
in like-for-like roles
Completed the first round
equity raising for the
Healthcare Wholesale
Property Fund
01
IN THIS REPORT
Overview
This section outlines our key achievements,
strategy and how we created value.
Highlights
About Dexus
10 years as Dexus
Our Strategy
Performance
against strategy
Performance
This section summarises our
performance for the year.
Chair and CEO review
Property portfolio
Funds management
Trading
Positive Momentum
This section identifies four areas where
positive momentum is enhancing our
position for the future.
Shaping leading cities
Connecting our customers
and communities
People, culture and systems
Our pathway to Net
Zero emissions
Governance
Governance
Board of Directors
Board activities
Directors’ Report
Remuneration report
Operating & financial review
Directors’ report
Auditor’s independence
declaration
Financial Report
Financial statements
Notes to the
financial statements
Directors’ declaration
Independent auditor’s report
Investor Information
Investor information
Additional information
Key ASX announcements
Directory
01
02
03
04
06
08
12
13
13
14
15
16
17
18
20
22
24
43
53
57
58
65
100
101
108
110
112
113
Overview 02
About Dexus
Dexus is one of Australia’s leading real estate groups,
managing a high quality Australian property portfolio
valued at $27.2 billion.
We believe the strength and quality of our
relationships will be central to our success,
and are deeply committed to working
with our customers to provide spaces
that engage and inspire.
The creation of sustained value is
underpinned by our quality property
portfolio, located across Australia’s major
cities. We are committed to playing a
leading role in shaping Australian cities for
the future as desirable places to live, work
and play.
We invest only in Australia, and directly
own $13.3 billion of office and industrial
properties. We manage a further
$13.9 billion of office, retail, industrial
and healthcare properties for third
party clients. The group’s $4.2 billion
development pipeline provides the
opportunity to grow both portfolios
and enhance future returns.
Dexus is a Top 50 entity by market
capitalisation listed on the Australian
Securities Exchange (trading code: DXS)
and is supported by 27,000 investors
from 20 countries. With more than 30 years
of expertise in property, investment,
development and asset management,
we have a proven track record in capital
and risk management and delivering
superior risk adjusted returns for
our investors.
“
We are deeply committed to
working with our customers to
provide spaces that engage
and inspire.”
HWPF $0.1bn
Australian Industrial
Partner $0.3bn
Dexus Office
Partner $2.3bn
Australian
Mandate
$2.0bn
Dexus
Industrial
Partner
$0.2bn
DWPF
$9.0bn
Dexus
portfolio
$13.3bn
$27.2bn
Total funds under management
148Properties
4.5m
Square metres across the group
427
Engaged employees
$9.9bn
Market capitalisation
Top 50
Entity on ASX
Dexus 2018 Annual ReportOverview years
being listed
as Dexus
It has been 10 years since we fully
internalised our management structure
and started on the journey towards
becoming one of Australia’s leading
property groups, today known as Dexus.
Since acquiring the remaining 50% interest in DB RREEF
Holdings from Deutsche Bank in 2008, we have built on
our strong foundations to grow our group portfolio from
$15.3 billion to $27.2 billion.
We continue to deliver superior risk-adjusted returns
to our investors through investment in a high quality
portfolio, predominantly comprising office buildings,
and the management of a strongly performing funds
management business. Our focus on active portfolio
management, underpinned by a prudent and disciplined
financial approach, has not changed.
Our strategy was revised in 2012 to build on our strengths
of office ownership and funds management, while
enhancing our position in the Australian property market.
We divested our exposure to offshore properties and
reinvested in high quality assets located in Australia’s
major cities, while at the same time growing and
diversifying our funds management business to include
new partnerships with global investors in the office,
industrial and healthcare sectors.
Our approach to sustainability was further aligned with
our overarching goal of delivering sustained value and
is fully integrated into our daily business operations.
Our customer centric approach uses the insights and
understanding of our customers, to provide market-
leading solutions and services while refreshing our
brand to further establish our customer connection.
Today we have a diverse and inclusive corporate
culture that reflects our customer base and delivers
high performance outcomes.
03
A decade of growth
2008
2018
Investors
21,927
27,226
Funds under
management
Sectors
Total FUM
$15.3bn
Dexus
$8.9bn
Third Party
$6.4bn
Office
$7.2bn
Industrial
$4.4bn
Retail
$3.6bn
Healthcare
–
Total FUM
$27.2bn
Dexus
$13.3bn
Third Party
$13.9bn
Office
$18.1bn
Industrial
$3.8bn
Retail
$5.2bn
Healthcare
$0.1bn
People
270
427
Market
capitalisation
$4.2bn
$9.9bn
Overview 04
Our Strategy
Dexus’s strategy is to deliver superior risk-adjusted
returns for investors from high quality real estate in
Australia’s major cities.
Delivering superior risk-adjusted returns
means outperforming the relevant
three and five year benchmarks in
each market in which Dexus owns or
manages properties while providing
Dexus Security holders with sustainable
and growing distributions.
We have two strategic objectives that
underpin this strategy:
- Leadership in office: being the leading
owner and manager of Australian
office property
- Funds management partner of choice:
being the wholesale partner of choice
in Australian property
Leadership in office is an aspiration that
is supported by our scale. As the largest
office owner and manager in Australia, we
have scale that provides many advantages.
Our scale supports the generation of
investment outperformance, through
providing valuable customer insights
and the opportunity to invest in people,
systems and technologies that enhance
our customers’ experience. It also
enhances our ability to find the ideal
workspace solution for customers and
generates cost efficiencies.
Our objectives of leadership in office and
funds management partner of choice
complement each other. Our success
in the office sector has enabled Dexus
to attract investment partners not just
in office, but also in the industrial, and
healthcare sectors, in turn providing
the opportunity to drive investment
performance for those clients.
Vision
Strategy
Strategic
objectives
To be globally recognised as Australia’s leading real estate company
To deliver superior risk-adjusted returns for investors from
high quality real estate in Australia’s major cities
Leadership in office
Funds management partner of choice
Being the leading owner and manager
of Australian office property
Being the wholesale partner of choice
in Australian property
Dexus 2018 Annual ReportOverview 05
How our business creates value
Our strategy is underpinned by our
business activities of developing,
managing and transacting properties.
To generate superior risk-adjusted returns
for investors it is necessary that for each
asset we own or manage, we maximise
cash flow and unlock value over the
investment lifecycle.
We do this through applying our
transactional, asset and property
management expertise to drive
earnings and create value across
three areas of focus:
- Property portfolio - the largest driver
of value and contains the Dexus office
and industrial portfolios
- Funds Management - provides access
to wholesale sources of capital and a
steady annuity-style income stream
- Trading - packaging of investment
opportunities to generate trading profits
What sets Dexus apart?
- High performing, engaged
and diverse workforce
- Quality real estate portfolio
across key Australian cities
- Funds management business
with access to diverse sources
of capital
- Pipeline of development
opportunities to create value
over the long term
- Customer centric focus
Developing
Unlocking value from existing
and acquired assets
Managing
Utilising asset and property
management expertise to
maximise the AFFO yield of
stabilised assets
Transacting
Acquiring and
selling properties
These overarching activities drive
earnings and create value across
our key earnings drivers
Property portfolio
Funds management
Trading
Long-term value creation
To support long-term value creation, we consider corporate responsibility and sustainability an integral part of our business
activities. Our approach supports our strategy through the overarching goal of delivering sustained value for all stakeholders.
The outcomes we seek to achieve are as follows:
Leading Cities
Leading
Cities
Future
Future Enabled Customers
Enabled
Customers
Strong
Strong Communities
Communities
Thriving
Thriving People
People
Enriched Environment
Enriched
Environment
Playing a leading role in shaping Australia’s cities
for the future as desirable places to work, live and play
Preparing our customers for the future through
enabling enhanced productivity and supporting
future growth
Nurturing well-connected, prosperous and supported
communities in and around our buildings
Enhancing the wellbeing of our people and those
in our properties
Optimising the environmental performance
and resilience of our buildings
To learn more about our approach to
managing these areas as well as our
FY18 achievements and performance
visit www.dexus.com/crsapproach
Overview 06
Performance
against strategy
We achieved strong performance against
our strategic objectives and key focus areas,
delivering sustained value for Security holders.
Leadership in office
Dexus’s owned and group office portfolios achieved
IPD outperformance over the 1, 3 and 5 years to 31 March
2018. Supporting our strategic objective of leadership
in office, leasing success enabled us to maintain high
portfolio occupancy and lock in future income streams
across the development pipeline. From a development
perspective, two office projects were activated in
Melbourne and Brisbane, and we successfully leased1
51% of the space at 240 St Georges Terrace in Perth,
where development works commenced in July 2018.
Funds management partner of choice
Supporting our strategic objective of being the
wholesale partner of choice in Australian property, we
achieved strong performance for our wholesale investors
and clients, with DWPF outperforming over 1, 3, 5, 7 and
10 year time periods. In addition, the first round equity
raise for the Healthcare Wholesale Property Fund
was completed. The $2.0 billion funds management
development pipeline was progressed, and a number
of transactions were undertaken to meet our clients’
investment objectives.
Dexus Office portfolio performance vs IPD2
Third Party funds under management
Third party funds under management
16.1%
15.1%
13.2%
14.9%
14.9%
13.4%
12.7% 12.8%
11.9%
1 year
3 years
5 years
Dexus portfolio
Dexus Group portfolio
IPD
1. As at 31 March 2018
15
12
9
6
3
0
148% growth
$13.9bn
$12.7bn
$11.2bn
$8.7bn
$9.6bn
$5.6bn
$6.1bn
FY12
FY13
FY14
FY15
FY16
FY17
FY18
We achieved strong outcomes across our key focus areas of Customer, People and Environment.
These results assist us in fulfilling our strategic objectives and delivering sustained value for Security holders.
Customer
People
Improved overall customer
Net Promoter Score3 to
Improved employee
engagement score to
87%
Environment
Achieved
1st
ranking in global listed office category
and 3rd overall in the 2017 GRESB survey
Workplace Gender Equality Agency
recognised Dexus as an Employer of
Choice for
Gender equality
Launched new goal to achieve
Net Zero
carbon emissions across the group’s
managed property portfolio by 2030
+32
Improved customer
satisfaction score to
8.3/10
1.
Including Heads of Agreement signed post 30 June 2018, with 57% of the impending Woodside vacancy
now solved.
2. As at 31 March 2018.
3.
Net Promoter Score (NPS) is calculated as the difference between the percentage of Promoters
and Detractors. The NPS is expressed as an absolute number between -100 and +100.
Dexus 2018 Annual ReportOverview 07
Creating value from earnings drivers
The FY18 contribution for our earnings drivers
and outlook for FY19 is outlined below.
Driver
FY18 contribution
FY19 outlook
Property
portfolio
Property AFFO1 of $568.7 million
4.5% office LFL income growth
3.0% industrial LFL income growth
4-5% office LFL income growth
2.5-3.5% industrial LFL income growth
Funds
management
Trading
1. Adjusted funds from operations.
2. Net of tax.
FFO of $52.5 million
FFO broadly in line with FY18
Trading profits of $36.6 million2
from the sale of 105 Phillip
Street and 140 George Street,
Parramatta
Trading profits of $35-40 million2
Overview 08
Chair and CEO review
In FY18, we performed
well across all areas of
the business, meeting or
exceeding our financial
and operational targets,
while continuing to unlock
opportunities to ensure
that we create sustained
value for our investors.
In an era of emerging
technologies, evolving
cities and changing
customer expectations,
the business environment
is rapidly changing and
Dexus is well positioned
for continued success.
We are building on the strong foundations
developed not only over the past decade
since becoming Dexus, but over the past
34 years from the establishment of our first
associated property trust.
In FY18, positive momentum across the
business has further cemented the group’s
leading position in the Australian property
market. Dexus is Australia’s largest owner
and manager of office property, with
$27.2 billion in funds under management,
of which $18.1 billion is invested in the office
sector and the majority of our office
portfolio located in the Sydney CBD.
We strive to deliver outstanding
destinations and experiences for our
customers and communities across
Australia, while addressing the drivers of
change in our market sectors. This year
we achieved strong operational results
across our core markets and activated
new development projects, while further
strengthening Dexus’s balance sheet.
Our office portfolio has consistently
outperformed the IPD office benchmark
over 1, 3 and 5-year time periods, with our
success underpinned by our customer
focus and active management of the
portfolio. Our funds management
portfolio of $13.9 billion covers the office,
industrial, retail and healthcare property
sectors. Leveraging our multi-sector
capabilities, we are delivering on our key
strategic objectives of leadership in office
and being the wholesale partner of choice.
Dexus 2018 Annual ReportPerformance 09
Positive momentum drives
strong financial result
This year, net profit increased 36.8%
to $1.73 billion supported by strong
property valuation increases. The full
year distribution of 47.8 cents per security
reflects an increase of 5.1% on the prior
year and exceeds the 4.5-5.0% guidance
range that was tightened in February 2018
(from the original guidance of 4.0-5.0%).
Underlying Funds from Operations per
security, which excludes trading profits,
increased 2.9%, highlighting the solid
contribution from the property portfolio
and funds management business.
The delivery of 3-5% growth in Adjusted
Funds from Operations (AFFO) per security
and an internal target for Return on
Contributed Equity through the cycle, are
key measures that drive long-term value
creation for security holders. In FY18, we
delivered AFFO per security growth of 5.1%,
a Return on Contributed Equity of 7.6% and
a Return on Equity of 19.8%.
At 30 June 2018, look-through gearing
was 24.1%, below Dexus’s target range of
30-40%. This position is a result of active
divestment of properties over the past
few years and provides the capacity to
fund projects in Dexus’s current and future
development pipeline.
Total Security holder Return
Dexus delivered a 7.5% total Security
holder return for the year, underperforming
the S&P/ASX 200 Property Accumulation
(A-REIT) Index by 550 basis points, following
a strong year of outperformance in FY17.
Dexus continues to outperform the index
over three, five and ten-year time periods.
Growth from all key earnings drivers
Our business has been set up to deliver
earnings growth through the cycle, and in
FY18 each of the earnings drivers positively
contributed to the result (refer to page 7).
Across our property portfolio, we achieved
strong valuation increases of $1.2 billion,
up 10.5% on prior book values. Our office
and industrial portfolios delivered +4.5%
and +3.0% like-for-like income growth
respectively. Strong property returns were
driven by rental growth from leasing, most
notably at our properties in the buoyant
Sydney market. In addition, leasing success
was achieved at our development at 100
Mount Street in North Sydney (now 63%
committed1) and 240 St Georges Terrace
in Perth, where strong levels of enquiry
converted to significant leasing (now 51%
leased1) (refer to page 12).
In the funds management business, we
now have 73 third party clients following
the completion of the first equity raise
for the Healthcare Wholesale Property
Fund. The Fund is currently undertaking
a second equity raise with active interest
from a number of global and domestic
investors. Dexus Wholesale Property Fund
(DWPF) and other funds delivered strong
performance and we continue to achieve
our clients’ objectives (refer to page 13).
In trading, we delivered $36.6 million in
trading profits net of tax, realising our FY18
target. In addition, FY19 trading profits
were de-risked through the announced
sale of 32 Flinders Street, Melbourne (refer
to page 13).
Enhancing future returns
Activity across the development pipeline
saw the commencement of office projects
in Melbourne and Brisbane enabling
Dexus to leverage our leasing and
development expertise.
The group’s $4.2 billion development
pipeline provides opportunity to enhance
future returns while growing the Dexus
portfolio and the portfolios of our third
party clients, which is an efficient use of
capital at this time in the cycle. Leasing
success in our core office markets
provided us with the confidence to
activate two quality office projects at
180 Flinders Street in Melbourne and
the Annex project at 12 Creek Street in
Brisbane. Dexus is also shortlisted or in an
exclusive position on potential concept
development opportunities valued at
circa $2 billion (refer to page 12).
Post year end, Dexus entered into
agreements to acquire three industrial
development landbanks (one jointly with
DWPF) enabling us to leverage our industrial
development management and leasing
capabilities to build out circa $700 million
of new industrial properties.
We actively review the property portfolio
in line with market conditions to determine
the best performance for our investors
and acquire properties where we can add
value over the long-term while ensuring
alignment with strategy. During FY18, we
completed $2.0 billion of transactions for
the Dexus portfolio and on behalf of our
third party clients.
13.0% 13.0%
7.5%
15.5%
14.4%
9.7% 9.0%
12.0%
10.0%
8.4%
6.0% 6.4%
1 year
3 years*
5 years*
10 years*
Dexus
S&P/ASX 200 A-REIT Index
S&P/ASX 200 Index
* Annualised compound return
Source: UBS Australia as at 30 June 2018
1.
Includes Heads of Agreement signed post 30 June 2018.
Performance 10
Chair and CEO review continued
We are focused on creating
sustained value and making
decisions that future-proof
the business.”
New energy, New opportunities
Our focus on sustainability continues
to play a key role in delivering long-term
value for our investors, and is integrated
into everything we do. Each year we
set ourselves measurable Corporate
Responsibility & Sustainability commitments
which we report against and encourage
you to view our achievements in the 2018
Annual Reporting suite.
Dexus has an established track record in
sustainability. We are globally recognised
as having the most sustainable listed office
portfolio and have been awarded for our
management of environmental, social and
governance principles, providing us with a
strong foundation to improve upon into
the future.
Over the past decade, we have been
focused on energy efficiency as well
as reducing the group’s emissions
and environmental footprint. This year,
we launched our “New energy, New
opportunities” strategy that sets a
pathway for Dexus to achieve net zero
emissions by 2030 through improving
energy efficiency and increasing
renewables. You can read more
about this approach on page 17.
Importance of strong governance
In a year that saw the financial services
sector come under intense scrutiny, the
importance of strong governance and
corporate culture as well as long-term
thinking have been brought into account.
It has stressed the importance of having
an open and inclusive culture and a Board
focus on non-financial performance
measures, even when things are going
well. As a Board, we use our Board
Committee structure to get closer to
the detail and have regular access and
dialogue with executives and employees
at various levels across the group.
Our Board comprises seven non-executive
directors and one executive director,
following the appointment of The
Hon. Nicola Roxon to the Board as an
independent director, effective from
1 September 2017 and the resignation of
Elizabeth Alexander at the Annual General
Meeting on 24 October 2017 after more
than 12 years of service.
This year we further enhanced the way
we report the key activities undertaken by
the Board and its respective committees
(refer to pages 22-23). Further details
relating to the Board and our governance
practices are included on pages 18-21 and
the Corporate Governance Statement
is available at www.dexus.com/
corporategovernance
An engaged and diverse workforce
Our people and culture are key to
delivering the group’s strategy, and
we believe that having an engaged
and diverse workforce contributes to
strong performance.
During the year, Dexus’s employee
engagement survey delivered a score
of 87%, which is significantly above
Willis Towers Watson’s Australian
National norm as well as above their
Global Property and Asset Management
norm. We have maintained long-term
stability across our senior team and
over the past 12 months, 26% of our
role vacancies were filled internally,
highlighting the capable, agile talent
we have at Dexus.
The safety of our people and contractors
is paramount. Safety performance
metrics are now a measure in the Group
Scorecard to ensure safety is front of
mind. For our corporate activities, there
were no serious incidents reported this
year, and independent external safety
audits achieved scores above target.
We believe the best thinking and
outcomes are realised when a workforce
is diverse and inclusive. Having achieved
our initial gender diversity targets, this
year, we set a new target of 40:40:20
to be reached by 30 June 2021. This
means that we are aiming to achieve
40% female representation, 40% male
representation and 20% of either male
or female representation across senior
manager roles and above. This target
signals our ongoing commitment and
progress towards gender equity and
will widen our talent pool to strengthen
Dexus’s competitive edge while providing
us with the flexibility to continue promotion
based on merit.
We strive to deliver outstanding
destinations and experiences for
our customers and communities
across Australia.”
Dexus 2018 Annual ReportPerformance 1111
Strong foundations.
Positive momentum.
We have established strong foundations
that have enabled us to constantly deliver
on our strategy, and positive momentum
across the business is enhancing our
position for the future.
Shaping leading cities
The creation of value is underpinned by our quality property
portfolio, located across Australia’s major cities. We are
committed to playing a leading role in shaping Australian
cities for the future as desirable places to live, work and play.
(refer to page 14)
Connecting our customers and communities
With a growing customer base of more than 4,900 customers,
we are using technologies and providing products and services
which create better enabled workspaces to support our
customers’ growth and productivity goals. (refer to page 15)
People, culture and systems
We invest heavily into developing our high performing workforce.
This has involved embracing diversity and inclusion to achieve
diversity of thought and innovative results. Our commitment
to gender equality, and the benefits it brings to the group’s
performance, has been recognised both internally and externally
to the group. (refer to page 16)
Our pathway to net zero emissions
As the momentum continues towards secure, affordable and
environmentally conscious energy, Dexus is acting on Australia’s
transition to a low carbon future. We believe now is the time to
leverage the opportunities presented by evolving energy markets
and new technologies and have set a goal to achieve a net
zero position for carbon emissions across the group’s managed
property portfolio by 2030. (refer to page 17)
FY19 Guidance
Deliver circa
5%
growth in distribution per security
for the year.
Outlook
Over the past six years, the combination
of earnings from our properties, funds
management business and trading
profits have enabled us to deliver
consistent growth in distributions,
through a variety of market conditions.
Australian cities are expected to continue
to benefit from global economic growth,
population growth and considerable
infrastructure construction activity over
the next few years, which we believe will
have a positive effect on demand for
office and industrial space.
We are focused on creating sustained
value and making decisions that future-
proof our business. Being innovative,
adopting new technologies and keeping
abreast of customer needs are key to
achieving this. Our development pipeline
is a source of embedded long-term
value, and the diversification of our funds
management business sets us up for
further expansion as superannuation
and global fund flows continue to grow.
On behalf of the Board and management,
we extend our thanks to all Dexus
employees across Australia for their
dedication and significant contribution in
delivering this year’s results. We thank our
funds management clients and capital
partners, in addition to our customers,
for their ongoing support.
Importantly, we thank you, our investors,
for your continued investment in Dexus.
Richard Sheppard
Chair
Darren Steinberg
Chief Executive Officer
Performance 12
Property portfolio
Our office and industrial portfolios achieved strong
total returns of 16.9% and 13.6% respectively. Both
portfolios continue to outperform the IPD benchmarks
over one and three year periods, with the office
portfolio also outperforming over five years.
Across Dexus’s office portfolio we
leased 242,957 square metres of space,
in addition to securing future income
streams through leasing 52,589 square
metres of space within development
projects. Portfolio occupancy reduced
marginally to 96% driven by the known
departure of CBA at Sydney Olympic Park,
providing opportunity for us to improve
this position in FY19.
Our office portfolio recorded a $1.1 billion
or 10.6% increase on prior book values,
reflecting further capitalisation rate
compression and increasing market
rents. Strong leasing, increasing market
rents and further capitalisation rate
compression in the core industrial markets
of South Sydney, Western Sydney and
Western Melbourne led to an industrial
valuation uplift of $141.9 million or 6.7%
on prior book values.
Tenant activity and market dynamics
have remained positive in all of our core
office markets. Strong levels of enquiry
in Perth have converted to significant
leasing at 240 St Georges Terrace and
Kings Square as tenants seek to upgrade
to better quality buildings and centralise
into the CBD.
The works at 240 St Georges Terrace
include the creation of a new street entry,
new end-of-trip facilities, and an improved
retail offering. On-floor upgrades will
commence from October 2018, prior to
Woodside’s lease expiry, with 57%1 of the
impending Woodside vacancy now solved.
Works also progressed at 100 Mount
Street, North Sydney, where NBN Co. was
secured as a new customer across 20,364
square metres. In aggregate, 50%1 of the
space is already committed at these four
key office developments with completions
scheduled over the next four years.
Our longer dated major development
projects also progressed. In Sydney, we
received stage 1 approval of the State
Significant Development Application
for the mixed-use development at
201 Elizabeth Street. In Brisbane, the
Queensland Government endorsed
Dexus’s Waterfront Precinct proposal
to progress to the next stage under the
Market-Led-Proposal Program. The plan
is to revitalise Brisbane’s premier dining
hub and create a traffic-free precinct
that delivers a global-standard business
address and tourist destination in the
heart of the CBD.
Our industrial portfolio continues to
benefit from an uptick in logistics and
e-commerce demand, which contributed
to the leasing of 192,116 square metres
of space, driving an improvement in
occupancy to 98.3%.
Six industrial developments were
completed, all of which were 100% leased.
Construction continues over a further
67,200 square metres of industrial space in
Greystanes and Laverton North, with 20%
of the space pre-leased.
In FY19, we expect rental growth across all
of our core office and industrial markets, in
addition to continued investment demand
for well leased Prime properties which will,
in turn, support values.
Progressing the development
pipeline
We activated two office projects in
Dexus’s $2.2 billion development pipeline
at 180 Flinders Street in the Melbourne
CBD and 12 Creek Street – The Annex in
Brisbane, and in July 2018, commenced
development works at 240 St Georges
Terrace in Perth. Dexus is also shortlisted
or in an exclusive position on potential
concept development opportunities
valued at circa $2 billion.
Post 30 June 2018, we replenished the
industrial development pipeline through
entering into agreements to acquire three
industrial development sites in Melbourne,
Sydney and Brisbane, one of which will
be acquired jointly with DWPF. These
developments have a combined end
value of circa $700 million and will be
built out over the next five to seven years.
They provide the opportunity to leverage
Dexus’s extensive market knowledge,
development and leasing capabilities
and track record in each of these markets.
1.
Includes Heads of Agreement signed post 30 June 2018.
FY19 Focus
- Maintain office and industrial
occupancy >95%
- Target like-for-like income
growth in office of 4-5%
and industrial of 2.5-3.5%
- Manage capital expenditure
down to $155-165 million
- Selective forward leasing
to manage expiry risk
- Capture upside in Sydney market
Case Study
Enhancing value through
active management
At Sydney properties, 45 Clarence Street
and 1 Farrer Place, Dexus has improved the
customer offer, achieving strong leasing
outcomes while enhancing the tenant mix.
The number of tenants at 45 Clarence
Street has increased from 30 in 2014 to
54 today, while over the same period
the number of tenants at 1 Farrer Place
increased from 63 to 108. The end-of-trip
amenity at both properties has been
enhanced and the on-floor lift lobbies
and bathrooms at 45 Clarence Street
refreshed, with a retail redevelopment
currently underway at 1 Farrer Place.
An active management approach
is reflected in the values of these
properties. Since 2014, the value of
45 Clarence Street has increased by
$186.7 million, with $90.3 million of this
uplift occurring in the past 12 months.
1 Farrer Place has achieved $327.2 million1
of valuation uplifts over the past four
years, with $63.8 million1 of this occurring
in the past 12 months, and both increases
driven mainly by rising market rents.
1. Dexus share.
Dexus 2018 Annual ReportPerformance Funds management
Trading
13
We achieved our FY18 trading profit
target of $35-40 million, delivering
$36.6 million net of tax from the sale
of 105 Phillip Street and 140 George
Street, both located in Parramatta.
The exchange of contracts to sell 32 Flinders Street,
Melbourne has de-risked FY19 trading profits.
Progress was made at 12 Frederick Street, St
Leonards (North Shore Health Hub) with Stage
1 planning approval received, in addition to the
completion of a leasing expression of interest
campaign which received strong interest from
potential tenants.
We had another strong year in our
trading business, achieving our target
and de-risking FY19 trading profits.”
Ross Du Vernet, Chief Investment Officer
Since 2012 our value-add strategies have led
to the sale of 12 properties identified for trading
purposes, delivering an average unlevered IRR of
circa 30% and $267 million in trading profits pre-tax
to Dexus Security holders.
A total of six projects diversified across sectors
and trading strategies have been earmarked to
deliver trading profits of $260-280 million pre-tax
in future years.
FY19 Focus
- Target trading profits of
$35-40 million net of tax
Our funds management business has
grown by $1.2 billion to $13.9 billion
through transactions, developments
and strong revaluations.
All funds delivered strong performance, with
Dexus Wholesale Property Fund delivering
top quartile performance and a one year
total return of 13.8%, outperforming its
benchmark over all time periods. The Dexus
Office Partnership delivered a one year
unlevered total property return of 16.0%.
The first equity raise for the Healthcare
Wholesale Property Fund was completed, the
development of Calvary Adelaide Hospital
progressed, and planning approval was
received for the North Shore Health Hub in
St Leonards.
We undertook $801 million1 of transactions
on behalf of our third party partners to fulfill
their investment objectives. In addition to
the acquisition of seed properties by the
Healthcare Wholesale Property Fund, the
Dexus Office Partnership acquired 140 George
Street in Parramatta for $13.5 million and
56 Berry Street in North Sydney for $31 million.
The Dexus Office Partnership also divested
non-core properties at 11 Waymouth Street
in Adelaide and 46 Colin Street in West Perth,
accompanied by some other small
divestments by DWPF.
FY19 Focus
- Deliver fund performance
- Deliver on clients’ investment
objectives and match capital
to opportunities
- Progress the launch of new
unlisted funds or partnerships
over the next 12-18 months
We continue to deliver strong
performance for all of our clients
and are progressing the funds
management development
pipeline which provides a
source of organic growth.”
Deborah Coakley, Executive General Manager,
Funds Management
1.
Includes transactions settled or announced post
30 June 2017 as well as the acquisition of 11-167 Palm
Springs Road, Ravenhall VIC, which was announced
post 30 June 2018.
Performance 14
Shaping leading cities
Dexus is positioned to benefit from continuing
infrastructure investment, densification and
growth within our major cities.
Dexus’s office portfolio is concentrated in
the key Central Business Districts (CBDs) of
cities around Australia which are locations
our customers favour for amenity, access
and business influence. Dexus’s future is
closely aligned with the future of our cities.
As part of that future, both position and
population are on our side. Australia has
enjoyed more than 25 years of economic
growth and is now benefiting from
its proximity to, and connection with,
growing Asian economies. As engines of
economic activity, our cities are significant
beneficiaries of this growth trajectory.
Population growth will also play an
important role. Australia has one of the
highest population growth rates in the
developed world, and 75 per cent of this
growth is forecast to take place in Sydney,
Melbourne, Brisbane and Perth.
Over the past decade, Sydney and
Melbourne added close to 800,000
and 1 million people respectively: each
is projected to grow to populations of
eight million people by 2056, comparable
to the current size of Hong Kong, London
or New York.
To accommodate this growth, change is
on the horizon. Australia’s city planners
are now favouring higher density
environments over urban sprawl. A shift to
densification, will move people, businesses
and capital closer to our CBDs, reinforcing
them as dominant economic and
employment centres.
Significant change like this requires the
right infrastructure. Record levels of
infrastructure development are underway
across our major cities to ensure they are
increasingly accessible and liveable for
the population growth they are expected
to experience.
Infrastructure aside, Australian cities are
highly adaptive and are already evolving
around this changing land use. Dexus is
constantly reviewing its portfolio to realise
opportunities that this presents.
Sydney’s existing central city core is land
constrained being only about one-quarter
of the size of New York’s Central Park.
In Sydney, we manage around 10 per cent
of the developable land in the city’s core,
making us an owner and manager of a
large and valuable land holding in the
Sydney CBD. An investment in Dexus is
an investment in cities.
We are committed to playing a
leading role in shaping Australian
cities for the future as desirable
places to live, work and play.“
Darren Steinberg, Dexus Chief Executive Officer
Land controlled
by Dexus
8hectares
Equivalent to circa
10%
of developable land
in Central Sydney
Case Study
Adapting to our evolving cities
With Australian cities just one third of
their way through a 100-year cycle
of urbanisation, Dexus is adapting
to evolving cities by progressing
mixed-use developments.
201 Elizabeth Street, Sydney
The City of Sydney has approved
removal of the existing office building
and redevelopment into a 50-storey
mixed-use hotel, retail and residential
building overlooking Hyde Park.
Clever site planning will achieve a 50%
reduction of the building’s shadow
cast on Hyde Park with no loss of
building area.
There is also an opportunity to enhance
the vibrancy of the precinct through
new retail amenity.
As cities evolve, Dexus will continue
to strengthen its capabilities to deliver
mixed-use developments, in turn
benefitting the wider community.
Leading
Cities
To learn more about Dexus’s
focus in FY19 in playing a role in
shaping Australia’s cities for the
future as desirable places to work
and live, visit www.dexus.com
Dexus 2018 Annual ReportPositive Momentum Connecting our
customers and communities
Technology is impacting the way our customers work.
Whether they are small businesses or major corporations,
our customers want spaces that support productivity,
collaboration and engagement.
We believe technological advancement
brings opportunities and we see this as a
chance to further support our customers
in their growth and productivity goals.
Our approach, which puts our customers
first, helps businesses create more
connected workspaces with a better
work-life experience.
Building in Wellness
A truly sustainable building not only
addresses the environmental impact, but
also the social impact on its community.
That’s why Wellness is an important
inclusion in our customer offer.
In our buildings, we consider the
health, wellbeing and experience of
our customers as a way of impacting
organisational culture, engagement
and productivity. Embracing Wellness
enables us to attract and retain high
quality customers and maximise financial
performance through lower vacancy
rates and higher rents.
Continuing to build on our momentum
in this area, this year we introduced
Wellplace to our customers. Wellplace
provides a suite of health and wellbeing
services and amenities within our
buildings that can be accessed across
our building community portals. This
includes integrating fitness into office life
by providing quality end of trip facilities,
including bicycle storage and group
fitness, yoga and pilates classes.
Case Study
SuiteX – a new
workspace offering
SuiteX is the next step in evolving
Dexus’s suites strategy. This new
workspace offer aims to satisfy
the growing customer demand for
flexibility by providing flexibility in
both space and tenure.
SuiteX occupies a whole floor at
44 Market Street, Sydney, where the
space has been converted into ten
flexible suites.
A unique modular design with
demountable inter-tenancy walls,
combined with flexible lease terms
starting from as short as six months,
allow customers to quickly expand
or consolidate as needed.
Customers also have access to
shared facilities including meeting
rooms, quiet rooms and a fully
equipped kitchen.
SuiteX enables our customers to align
their space needs with their business
needs, providing a quality workspace
which does not require the need
for a long-term commitment. It’s a
natural extension of Dexus’s focus on
partnering with customers throughout
each step of their property journey.
We believe the workplace should
be a strategic lever for organisations
to unlock potential. It’s through
this lens that we seek to support
our customers to be the best
they can be by providing better
enabled environments.”
Kevin George, Executive
General Manager, Office & Industrial
15
Creating communities that
go beyond the physical space
A ‘smart building’ provides solutions that
improve the occupants’ quality of life not
simply through gadgets or smart devices,
but by using carefully selected, efficient
and flexible technology. When used well,
a building’s technology can both support
and connect all of its occupants.
We are embedding sophisticated
technologies into the fabric of our
buildings to not only future proof their
performance by improving their quality
and long-term appeal, but to create
smart buildings of the future.
Our smart building blueprint will be
rolled out at 100 Mount Street, North
Sydney, where we are implementing
more than 15 innovative technologies
to deliver a better customer experience,
optimising workforce productivity and
wellbeing, and improving the building’s
sustainability performance.
Our smart building solutions aim to
provide advanced connectivity, including
whole building cellular coverage which
is future enabled for the arrival of the 5G
network. Data captured through sensors
aims to provide rich insights into building
performance and enable our customers
to tailor their experience by controlling
their workspace heating and cooling, or to
understand how their space is being used
to optimise their own workspace design.
The benefits of new technologies for
our customers are wide ranging. In our
smart buildings, customers will not only
be able to enhance the productivity,
wellbeing and safety of their employees,
they will reduce energy consumption; all
advantages that our customers can use
to attract and retain talent.
Future
Enabled
Customers
Strong
Communities
To learn more about Dexus’s FY19 focus to
prepare our customers for the future, while
nurturing well-connected, prosperous and
supported communities, visit www.dexus.com
Positive Momentum 16
People, culture and systems
Underpinning Dexus’s performance is our
engaged, talented and diverse workforce.
In the decade since Dexus internalised
its management, we have spent
time developing our high performing,
multi-disciplined workforce to deliver
performance for our investors and
capital partners.
We believe that a diverse and inclusive
workforce fosters diversity of thought and
innovative results, and we have invested
in programs and policies that support
this goal.
It’s a move that has been commended
both inside and outside the business. In
recognition of our commitment to gender
equality and the benefits it brings, Dexus
was this year awarded an Employer of
Choice for Gender Equality citation by the
Workplace Gender Equality Agency (WGEA).
Our achievements include gender
pay equity in like-for-like roles, flexible
working embedded and utilised across
the business, and continuation of
superannuation payments to primary
carers throughout their leave period to
close the superannuation retirement
gender gap.
Since reaching our initial gender diversity
target of 33% female representation for
senior leaders, we have set a new three-
year 40:40:20 (40% men, 40% women,
20% either) target for senior management
roles. Our Board remains gender diverse
with 38% of our directors being female.
Our commitment to diversity extends
across our recruitment, retention,
promotions, succession planning and
training and development practices. We
also provide our leaders and managers
with the tools to remove unconscious bias,
an important aspect of our journey to
create a more inclusive culture.
We are proud of our corporate culture
and engaged workforce. Our employee
surveys reveal a high engagement score
of 87%. Our workforce is also connected
to the group’s strategy and focused on
sustainable performance outcomes.
We see this commitment at all levels of
the organisation. Our people and culture
strategy has led to an engaged stable
management team that is delivering
consistent business results. We are also
building the next generation of leaders
with ongoing internal career mobility,
leadership development and training
opportunities.
Strengthening our systems
To support our people, we are investing in
systems and processes that will define how
we operate as a business, which includes
a new enterprise platform designed to
enhance the efficiency of our day-to-day
operations. Reducing the operational
demands on our people will enable them
to spend more time and focus on the
customer. This platform will set up Dexus
for the future, creating a foundation for
operational excellence, improving our
customer experience and supporting
the delivery of our strategy.
Achieving gender equality is important for
many reasons. Yes, it is ‘fair’ and ‘the right thing
to do’, but it’s also linked to performance. Our
commitment in this area enhances our reputation,
improves our culture and allows us to attract and
retain talented employees.”
Alison Harrop, Dexus Chief Financial Officer
Case Study
Fathers at work
Leading programs that support
working parents help Dexus
attract and retain the best talent.
In Australian workplaces, it remains
uncommon for fathers to take
primary carers leave, with 70% back
at work within two weeks of the birth
of their child.
Recognising that parental leave
is a valuable experience for both
women and men, Dexus introduced
its ‘Dexus Dads’ program supporting
fathers who take primary carers leave
through networking opportunities
with fellow working fathers.
The program has been embraced
by new fathers at Dexus and had a
positive impact on the take-up of
primary carers leave amongst men
who now comprise almost 20% of the
primary carers at Dexus, up from zero
participation in 2016. Dexus Dads
have reported that they were able to
enjoy a rewarding carer’s experience,
while gaining a new appreciation for
the challenges of caring for a newborn.
Thriving
People
To learn more about Dexus’s FY19
focus on enhancing the wellbeing
of our people and those in our
buildings, visit www.dexus.com
Dexus 2018 Annual ReportPositive Momentum 17
Our pathway to
Net Zero emissions
New energy, New opportunities.
Dexus is preparing for the future.
Building on our track record of
achieving strong environmental
outcomes over the past decade,
we are creating a pathway to
net zero emissions through our
approach to new energy and
smart buildings.”
Darren Steinberg, Dexus Chief Executive Officer
Case Study
Setting a new benchmark
for energy ratings
Dexus is driving the next phase of
energy efficiency through a targeted
building refurbishment program to
optimise energy performance, reduce
costs and deliver an enhanced
customer experience.
Our ‘virtual engineering’ analytics
platform identifies areas for
optimisation, and together with
strategic partnerships, has resulted in
improvements to the NABERS Energy
ratings across 15 Dexus office buildings.
As a result, we are well progressed
on our target of delivering 1,000,000
square metres to a minimum 5 star
NABERS Energy rating across the
group’s office portfolio by 2020.
A number of properties have achieved
a 5.5 star NABERS Energy rating,
including 14 Lee Street in Sydney and
Waterfront Place in Brisbane where
the building management control
systems and central chiller plants
have been upgraded, fully integrating
sustainability initiatives to realise
maximum efficiency and operational
cost savings from the projects.
Office NABERS Energy rating improvements1
5 star rating
5.5 star rating
35
30
25
20
15
10
5
s
e
i
t
r
e
p
o
r
p
e
c
i
f
f
o
s
u
x
e
D
f
o
r
e
b
m
u
N
0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
1. Ratings exclude GreenPower
The carbon emissions under our
operational control are mostly from
electricity. Reducing emissions starts with
improving efficiency, an outcome we will
achieve by embracing new technologies
and creating smarter buildings where
nothing is wasted (refer to page 15). Our
goal is to reduce our energy use by up to
50% by 2030, setting the standard for the
future of energy efficient workplaces.
Transitioning to renewable energy will see
Dexus looking for new ways to generate,
and smarter ways to purchase, electricity.
As new technology advances, costs will
reduce, while power purchase agreements
will allow us to minimise risk and provide
certainty for our customers in a volatile
national energy market.
We have been working on this goal for
some time, incorporating renewable
energy, virtual engineering analytics and
high efficiency plant upgrades into our
operations. We are ready to leverage new
opportunities from emerging technologies
in addition to forward thinking to respond to
our customers’ needs, today and tomorrow.
Not only will our net zero commitment
enable us to deliver on the expectations
of our customers and investors – many
of whom are keen for us to limit the
climate change impacts of our properties
– but Dexus will be making a positive
contribution to a sustainable future for
all Australians.
We believe it is time to leverage the
opportunities presented by rapidly
evolving energy markets and ground
breaking new technologies. Now is the
time to adopt a long-term solution which
secures sustainable, affordable energy
for our efficient, intelligent and integrated
property portfolio.
With these developments, we have set
a goal to achieve a net zero position for
all carbon emissions across the group’s
managed property portfolio by 2030.
Net zero means that on balance, our base
building operations will produce zero
carbon by 2030.
Why net zero? Not only is it the right
thing to do, but it builds resilience into
our portfolio and brings other real
benefits to a wide variety of stakeholders.
The direct beneficiaries of our New
energy, New opportunities approach
are our customers, and the cities and
communities in which we operate.
We have long proven that setting bold
group targets leads to the best outcomes.
Applying the NABERS ratings system,
we benchmark the energy efficiency,
water usage, waste management
and indoor environment quality of our
buildings and tenancies to measure
their environmental impact.
Since 2009, we have set and achieved
each progressive target for NABERS Energy
rating improvements and energy reduction.
We are well on our way to achieving our
current target to deliver 1,000,000 square
metres of office space with a 5 stars NABERS
Energy rating or above by 2020, which
currently stands at 892,000 square metres.
How will we get there? Net zero will
be achieved through continuing
improvement in energy efficiency and
transitioning our portfolio to operate
from renewable energy.
Enriched
Environment
To learn more about Dexus’s FY19
focus on optimising the environmental
performance and resilience of our
buildings, visit www.dexus.com
Positive Momentum
18
Governance
Good corporate governance is the foundation for the
long-term success of the group, and the achievement
of Dexus’s strategy is underpinned by a strong
governance platform.
The Dexus Board and Group Management Committee are committed to excellence in corporate governance and aspire to the
highest standards of conduct and disclosure. To support this aspiration, Dexus has embedded a set of well-defined policies and
processes that enhance corporate performance and protect the interests of all key stakeholders.
The Board regularly reviews its corporate governance policies and processes to ensure they are appropriate and meet governance
standards and regulatory requirements. For the 2018 financial year, the group’s governance practices complied with the latest
ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations. Further details are set out in the
Corporate Governance Statement, which outlines key aspects of Dexus’s corporate governance framework and practices, which
is available at www.dexus.com/corporategovernance
Board of Directors
The Board comprises a majority of Independent Directors with all directors other than the CEO being Independent Non-Executive
Directors. The Board currently comprises seven Independent Non-Executive Directors and one Executive Director.
The Board renewal process over the past several years has produced a strong Board of Directors with a broad and diverse skill set.
The Board has determined that, along with individual director performance, diversity is integral to a well-functioning board.
The members of the Board of Directors and the relevant business and management experience the Directors bring to the Board
is detailed on pages 20-21 and available at www.dexus.com/corporategovernance
The Dexus Board and Board Committee membership
Director
Board
Audit Committee
Risk Committee
People &
Remuneration
Committee
Nomination
Committee
Richard Sheppard
Darren Steinberg
Penny Bingham-Hall
John Conde
Tonianne Dwyer
Mark Ford
The Hon. Nicola Roxon
Peter St George
Chair and member
Member
Dexus 2018 Annual ReportGovernance 19
Board skills and experience
The Board has determined the skills, expertise and experience required as a collective to ensure diversity of thought and vigorous
debate on key decisions. The collective experience of the current directors has been outlined against the categories in the table
below and the Board has determined that the current composition of the Board meets or exceeds the minimum requirements in
each category.
Areas of Skills & Expertise
Experience
Leadership
- Directorship experience (past and present)
- Senior management experience (past and present)
Capital & Funds Management
- Experience in the dynamics of raising capital and investment banking
- Experience in the management of third party funds
Finance & Accounting
Governance
People Management
& Remuneration
- Experience in analysing and challenging accounting material and financial statements
and assessing financial viability
- Experience in understanding financial drivers/funding and business models
- Experience with corporate governance and standards of complex organisations
- Ability to assess and commitment to ensure the effectiveness of governance structures
- Experience in relation to remuneration and the legislation/framework governing
remuneration
- Experience in managing people and influencing organisational culture
Property Experience
(Including Developments)
property development
- Understanding of stakeholder needs and industry trends
- Experience and industry knowledge in the management of properties including
Risk management
- Experience in workplace health & safety, environmental & community, social
responsibility and technology matters affecting organisations
- Experience in managing areas of major risk to the organisation
Strategy
- Ability to guide and review strategy through constructive questioning and suggestions
- Experience in development and successful implementation of strategy
- Experience in mergers and acquisitions activities
Sustainability
- Experience in implementing sustainability policies and practices, adopting a long-
term approach to decision making
- Understanding of environmental and social topics relevant to the property sector
Governance
20
Board of Directors
From L to R: Tonianne Dwyer, The Hon. Nicola Roxon, John Conde, Richard Sheppard, Darren Steinberg, Mark Ford, Penny Bingham-Hall, Peter St George
Richard Sheppard
Chair and Independent Director
BEc Hons, FAICD
Richard Sheppard is both
Chair and Independent
Director of Dexus Funds
Management Limited, Chair
of the Board Nomination
Committee and a member
of the Board People &
Remuneration Committee.
Richard brings to the
Dexus Board extensive
experience in banking and
finance sector and as a
director and Chairman of
listed and unlisted property
trusts. Richard was formerly
Managing Director and Chief
Executive Officer of Macquarie
Bank Limited.
Penny Bingham-Hall
Independent Director
BA (Industrial Design), FAICD,
SF (Fin)
Penny Bingham-Hall is an
Independent Director of Dexus
Funds Management Limited,
Chair of the Board People
& Remuneration Committee
and a member of the Board
Nomination Committee and
Board Risk Committee.
Penny has broad industry
experience including
business strategy and
planning, corporate
affairs, investor relations
and governance across
construction, property and
infrastructure development.
Penny was formerly Executive
General Manager, Strategy
of Leighton Holdings Limited.
John Conde
Independent Director
BSc, BE (Hons), MBA, FAICD
Tonianne Dwyer
Independent Director
BJuris (Hons), LLB (Hons)
John Conde is an
Independent Director of Dexus
Funds Management Limited
and Dexus Wholesale Property
Limited and a member of the
Board Audit Committee and
Board Nomination Committee.
John brings to the Board
extensive experience
across diverse sectors
including commerce,
industry and government
and was previously Chair
of Bupa Australia and
New Zealand.
Tonianne Dwyer is an
Independent Director of Dexus
Funds Management Limited
and Dexus Wholesale Property
Limited, Chair of the Board
Risk Committee and a member
of the Board Audit Committee.
Tonianne brings to the
Board significant experience
as a company director
and executive working
in listed property, funds
management and corporate
strategy across a variety of
international markets. Tonianne
was previously a Director
of Quintain Estates and
Development - a listed United
Kingdom property company.
Dexus 2018 Annual ReportGovernance Mark Ford
Independent Director
Dip. Tech (Commerce),
CA, FAICD
Mark Ford is an Independent
Director of Dexus Funds
Management Limited and
a member of the Board
Audit Committee and
Board Risk Committee.
Mark has extensive property
industry experience and has
been involved in real estate
funds management for over
25 years. Mark was previously
Managing Director, Head
of DB Real Estate Australia
managing more than
$10 billion in property funds.
Peter St George
Independent Director
CA(SA), MBA
Peter St George is an
Independent Director of Dexus
Funds Management Limited,
Chair of the Board Audit
Committee and a member of
the Board Risk Committee.
Peter has more than 20 years’
experience in senior corporate
advisory and finance roles
within NatWest Markets and
Hill Samuel & Co in London.
Peter was previously Chief
Executive/Co-Chief Executive
Officer of Salomon Smith
Barney Australia/NatWest
Markets Australia.
The Hon. Nicola Roxon
Independent Director
BA/LLB (Hons), GAICD
Nicola Roxon is an Independent
Director of Dexus Funds
Management Limited and a
member of the Board People &
Remuneration Committee and
Board Risk Committee.
Nicola has more than 20 years’
experience in the public sector
and significant expertise in
highly regulated consumer
industries, professional
services and the not-for-
profit sector. She has deep
industry knowledge of the
health, government and
professional service sector
acquired in positions including
Federal Attorney General,
Federal Minister for Health
and Ageing, and Industrial
Lawyer and Advocate at
Maurice Blackburn and the
National Union of Workers.
Darren Steinberg
Chief Executive Officer
and Executive Director
BEc, FAICD, FRICS, FAPI
Darren Steinberg is the CEO
of Dexus and an Executive
Director of Dexus Funds
Management Limited.
Darren has over 25 years’
experience in the property
and funds management
industry with an extensive
background in office,
industrial and retail property
investment and development.
Darren is a Director and former
National President of the
Property Council of Australia,
a Fellow of the Australian
Institute of Company Directors,
Royal Institution of Chartered
Surveyors and the Australian
Property Institute. He is also a
founding member of Property
Male Champions of Change.
21
Board composition
Professional qualifications
8%
17%
17%
Science
MBA
Economics
Law
Board tenure
25%
8%
25%
25%
Commerce/
Accounting
Other
25%
12%
38%
0-3 years
6-9 years
3-6 years
9+ years
Board gender diversity
38%
62%
Female
Male
Governance 22
Board activities
across the year
Our Board plays an active role in key decisions that
affect the implementation of Dexus’s strategy.
The following identifies the key areas of activity for the
Board and its respective Board Committees during FY18.
Strategy, transactions and developments
- Reviewed Dexus’s strategy and endorsed areas of focus for FY19
- Considered and approved the Dexus property portfolio
Investment Plan
- Considered and approved the establishment of the
Healthcare Wholesale Property Fund
- Considered and approved the development projects at
180 Flinders Street, Melbourne, The Annex at 12 Creek Street,
Brisbane and 11 Talavera Road, Macquarie Park, subject to
tenant pre-commitment
- Considered and approved the acquisitions of 56 Berry Street,
North Sydney (DXS 50%), 586 Wickham Street, Fortitude Valley,
and three industrial land banks
- Considered and approved the divestment of 11 Waymouth Street,
Adelaide (DXS 50%)
- Considered and approved the divestment of 140 George Street,
Parramatta to the Dexus Office Partnership
- Reviewed the performance of key acquisitions or developments
against Board approved metrics
- Considered and discussed mega-trends impacting the real
estate sector
Governance, customers, investors
and the environment
- Approved changes to membership of the Board People and
Remuneration Committee, Board Nomination Committee, Board Audit
Committee and Board Risk Committee
- Reviewed the annual customer survey results
- Reviewed and approved the Corporate Governance Statement
- Met with proxy advisers and key investors in Sydney and Melbourne
- Reviewed and considered institutional investor perception studies
and opportunities for improvement
- Reviewed and discussed the APRA report released in May 2018 and the
proposed ASX Listing Rule changes to be implemented on 1 July 2019
- Approved the appointment of the Hon. Nicola Roxon to the Dexus Board
- Discussed the recommendations of the Task Force on Climate-related
Financial Disclosures (TCFD) report
- Reviewed and endorsed the group’s New energy, New opportunities
strategy to achieve net zero emissions by 2030
Dexus 2018 Annual ReportGovernance 23
Risk management
- The Board Risk Committee and Group Management Committee (GMC) reviewed, considered
and revised Dexus’s top key risks via an externally facilitated strategic risk workshop
- Reviewed and approved the Risk Management Framework including the implementation
of Risk Appetite Statements
- Held discussions with the Auditors without management present
- Reviewed and considered the results of externally facilitated internal audits and associated
actions for improvement
- Undertook a variety of site visits and met with operational staff
- Reviewed and considered external reports on facade cladding and appropriate action
plans for assets requiring remediation
- Discussed cyber-security, terrorism and security risks
- Reviewed learnings from externally facilitated crisis management planning exercise
undertaken by Dexus senior managers
Financial performance
- Considered, approved and at the half-year, tightened Dexus’s FY18
market guidance to the higher end of the previously stated guidance range
- Approved the distribution per security payment amount for HY18 and FY18
- Reviewed and approved the independent external property valuations
for HY18 and FY18
- Considered the financial performance of the business and approved
the Three Year Financial Business Plan
- Reviewed and considered the Audit Report for 2018
- Considered and approved the issuance of US Private Placement
notes in October 2017
- Reviewed and considered the three year Funding Plan, Treasury policy
and liquidity of the group
- Reviewed and approved the results materials including the financial
statements, Annual Report, ASX release and investor presentation
People and Leadership
- Reviewed and discussed the results of the group employee engagement survey
- Undertook regular engagement, discussions and monitoring to reinforce an
appropriate risk culture across the group
- Approved a minimum security holding guideline for members of the GMC
- Approved the new 40:40:20 by 2021 gender diversity target
- Reviewed and considered succession planning for GMC and other key roles
- Monitored gender pay parity
- Considered and discussed the Board and Committee composition, succession
and renewal planning
- Undertook and discussed the outcomes of an internal Board evaluation
and effectiveness review and associated actions
- Reviewed and considered Dexus’s risk culture framework and reporting
- Reviewed and discussed scorecards, KPIs, performance and remuneration
outcomes for the group and GMC
Governance 24
Directors’ Report
Remuneration Report
We are pleased to share our
remuneration report which focuses
on our remuneration strategy and
outcomes, in addition to our people
and culture highlights for the financial
year ending 30 June 2018.
This year, Dexus delivered strong results across all key financial metrics and
achieved sustained performance improvements across non-financial areas
including the customer net promoter score, safety, employee engagement
and environmental sustainability.
At Dexus, we also focus on building a great workplace and corporate culture to
support our business strategy and ensure that decisions contribute to sustainable
long-term returns. To drive genuine diversity of thought and experience across the
group, we launched a new gender diversity target of 40% female representation,
40% male representation and 20% either male or female representation across
senior manager roles and above, to be reached by 30 June 2021.
To achieve alignment of interests with our security holders and strengthen
engagement within Dexus, our remuneration structure includes deferral of
an equity component of the short-term incentive (STI) over 1 and 2 years and
long-term incentives (LTI) vesting over 3 and 4 years. And from FY19, we have
established a new guideline that will result in Executive Key Management
Personnel (KMP) being required to maintain a minimum DXS security holding
equivalent to 150% of fixed remuneration for the CEO and 75% of fixed
remuneration for other executive KMP.
In FY18, remuneration benchmarking across A-REIT competitors and other
companies highlighted that fixed remuneration and the maximum potential
opportunity for LTI at Dexus was below our market comparators of similar size
and complexity. The Board has agreed to increase the maximum available LTI,
delivered as Performance Rights, to ensure that the total remuneration opportunity
remains competitive.
In FY18, STI outcomes across the balanced scorecard for KMP were above target,
resulting in STIs being awarded to KMP at an average 86% of their maximum
potential. All of the four performance hurdles for the LTI plans that vested
during FY18 were achieved in full as determined by the Board.
There are no changes proposed to Non-Executive Director remuneration for FY19.
As a Board we continue to set incentive targets which reflect our focus on
delivering superior risk adjusted returns for investors and sustained performance
over the long term. We also monitor the Dexus culture to ensure that behaviours
reflect our values and that decisions are made in the best interests of all
stakeholders.
Penny Bingham-Hall
Chair – People and Remuneration Committee
The report has been prepared and audited in accordance with section 308(3C)
of the Corporations Act 2001.
This Remuneration Report forms
part of the Directors’ Report and
outlines the remuneration framework
and outcomes for Key Management
Personnel (KMP) for FY18.
The main objective of the People and
Remuneration Committee (PRC) is to assist
the Board in fulfilling its responsibilities
by developing the remuneration strategy,
framework and policies for Non-Executive
Directors, Executive KMP and the Group
Management Committee (GMC), for
Board approval.
During FY18 the Committee
- Reviewed and validated the group’s risk
culture framework and metrics
- Monitored the staff engagement survey
approach and results
- Reviewed and approved performance
objectives and Key Performance
Indicators for the CEO, KMP and
other executives
- Reviewed company performance
against business objectives and
strategic goals
- Revised the diversity and inclusion
strategy introducing a new gender
diversity target of 40:40:20 by 2021
- Reviewed executive and key talent
assessments for succession planning
and talent management
- Introduced a new GMC minimum
security holding guideline
- Undertook remuneration benchmarking
for the CEO, KMP and other executives
During FY19 the Committee will focus on
- Monitoring talent and leadership
development programs
- Monitoring culture metrics
and outcomes
- Refreshing the group’s diversity and
inclusion strategy
- Monitoring and assessing group, CEO,
KMP and other executives’ performance
- Reviewing and approving the group
balanced scorecard
- Continuing to monitor the Company’s
executive remuneration to support the
business strategy
6. Level 1 heading 6.1 Level 2 headingBody copy and other contentDexus 2018 Annual ReportDirectors’ Report CONTENTS
1. Introduction
2. Remuneration strategy
and governance
3. Remuneration
structure
25
26
30
4. FY18 Dexus
performance highlights
32
5. FY18 CEO
performance
6. Remuneration
outcomes
7. Terms of KMP service
agreements
33
34
37
8. Non-Executive
Directors’ remuneration
38
9. Additional
disclosures
40
25
1. Introduction
1.1 Key Management Personnel
In this report, Key Management Personnel (KMP) are those
individuals having the authority and responsibility for
planning, directing and controlling the activities of the group,
either directly or indirectly.
They comprise:
- Non-Executive Directors
- Executive Directors
- Other Executives considered KMP
Executive Directors and other Executives considered KMP
are referred to collectively as “Executive KMP” in this report.
The below outlines KMP of the group during FY17 and FY18.
There have been no changes to KMP since the end of the
reporting period.
Independent Non-Executive Directors
W Richard Sheppard
Non-Executive Chair
Elizabeth A Alexander AM
Non-Executive Director
Penny Bingham-Hall
Non-Executive Director
John C Conde AO
Non-Executive Director
Tonianne Dwyer
Non-Executive Director
Mark H Ford
Non-Executive Director
Nicola Roxon
Non-Executive Director
Peter B St George
Non-Executive Director
Executive Directors
Darren J Steinberg
Executive Director and Chief Executive Officer
KMP
FY17
✔
✔
✔
✔
✔
From
1 November 2016
✗
✔
✔
Craig D Mitchell
Executive Director and Chief Operating Officer
To 15 July 2016
Other Executives
Alison C Harrop
Chief Financial Officer
Ross G Du Vernet
Chief Investment Officer
Kevin L George
Executive General Manager, Office & Industrial
Deborah C Coakley
Executive General Manager, Funds Management
✔
✔
✔
✔
KMP
FY18
✔
To 24 October 2017
✔
✔
✔
✔
From
1 September 2017
✔
✔
✗
✔
✔
✔
✔
Directors’ Report 26
2. Remuneration strategy and governance
2.1 Our remuneration strategy
Our Vision
To be globally recognised
as Australia’s leading real
estate company
Our Strategy
To deliver superior risk-
adjusted returns for
investors from high quality
real estate in Australia’s
major cities
Our Remuneration Strategy
To attract, retain and motivate the best people to drive a
great culture that delivers on our business strategy and
contributes to sustainable long-term returns
Remuneration principles
Culture
We align reward to
our strong risk, high
performance, diverse and
inclusive culture
Alignment to
performance
We reward for
performance aligned
with our business
strategy
Market competitive
We position reward
opportunity to attract
and retain the best talent
Sustainable
We balance our financial
and non-financial
priorities
Simple and
Transparent
We keep it simple and
set clear expectations
Executive
Remuneration
Components
Purpose
Fixed
Remuneration
Short-Term
Incentive
Long-Term
Incentive
Attract and retain executives
with the capability and
experience to deliver
our strategy.
Reward for performance
against annual objectives
and key performance
indicators (KPIs).
Align performance focus with
the long-term business strategy
to drive sustained earnings
and security holder returns.
Link to
performance
Motivation to drive a great
culture and deliver on the
business strategy.
Strategic annual objectives
embedded in each executive’s
personalised scorecard of KPIs.
Performance hurdles are set
by the Board over three and
four year periods to deliver
sustained security holder value.
Performance
measures
Significant position
accountabilities that
support the execution
of the business strategy.
Group financial, customer,
culture, environment, risk, safety
and other strategic objectives.
50%
AFFO
growth1
50%
ROCE1
Alignment
Attract and retain
the best people.
Delivery
Competitive market based
fixed remuneration.
(Base Salary and Statutory
Superannuation).
Reward year-on-year
performance achieved in a
balanced and sustainable
manner.
Encourage sustainable,
long-term value creation.
Annual cash
payment
(75%)
Deferred Rights
(25%)2
Performance Rights3 with
allocation calculated at
Face Value
12.5%
12.5%
50%
1 year
2 years
3 years
50%
4 years
1. LTI grants prior to the 2016 Grant had the following four performance conditions: Funds from Operations (FFO) growth, average Return on Equity (ROE)
relative ROE, relative Total Security holder Return (TSR). Adjusted Funds from Operations (AFFO) was introduced in 2015 and Return on Contributed
Equity (ROCE) was introduced in 2016.
2. The deferred component is subject to clawback and requires continued employment during the vesting period.
3. There is no re-testing and the LTI is subject to forfeiture if: (1) performance conditions are not met, (2) the Executive terminates within 12 months of the
grant date or (3) the Executive voluntarily resigns or is terminated for cause prior to vesting.
6. Level 1 heading 6.1 Level 2 headingBody copy and other contentDexus 2018 Annual ReportDirectors’ Report 27
2.2 Remuneration delivery and mix
The Executive KMP remuneration mix is structured so that a substantial portion of remuneration is delivered as Dexus securities through
either deferred STI or LTI. The total remuneration opportunity is positioned at the top quartile for outperformance. The following diagram
(which is not to scale) sets out the remuneration structure and delivery timing for Executive KMP.
Remuneration delivery
1. Fixed remuneration
2. STI
(Target is 100% of fixed
remuneration)
3. LTI delivered as
Performance Rights
(120% of fixed remuneration
for CEO or 60% of fixed
remuneration for KMP)
100%
Base Salary,
Superannuation
and Other
Benefits1
75% paid in Cash
Cash STI
25% deferred into
Share Rights
50% subject to a 3 year
performance period
50% subject to a 4 year
performance period
12.5% deferred for 1 year
delivered as Share Rights
12.5% deferred for 2 years delivered as Share Rights
25% subject to Adjusted Funds from Operations
(AFFO) growth
25% subject to average Return on Contributed
Equity (ROCE) performance
25% subject to AFFO growth
25% subject to average ROCE performance
k
c
a
b
w
a
c
o
t
l
j
t
c
e
b
u
S
Year 1
Year 2
Year 3
Year 4
1. Other Benefits comprise wellbeing and insurance arrangements provided to all employees. These benefits do not flow into the STI and LTI calculations.
Remuneration mix
The remuneration components for each KMP are expressed as a percentage of total remuneration, with the STI value varied to reflect
target performance (100% of target amount) and outperformance (125% of target amount).
The following diagram sets out the remuneration structure for Executive KMP.
CEO
Target
Outperformance
Executive KMP
Target
Outperformance
31%
23%
8%
29%
27%
9%
38.5%
28.5%
10%
35%
33%
11%
38%
35%
23%
21%
Fixed
STI (Cash)
STI Deferred (Share Rights)
Maximum LTI
Directors’ Report
28
2.3 Changes for FY19
Executive remuneration
Fixed remuneration
In FY18, the PRC undertook executive remuneration benchmarking across A-REIT
competitors and similar size companies. Total remuneration was found to be
below our market comparators of similar size and complexity. To ensure the total
remuneration opportunity remains competitive, the Board approved an average
increase of 6.5% to Executive KMP (excluding the CEO) fixed remuneration for FY19.
In FY19 there is no fixed remuneration increase for the CEO.
Long-term incentive (LTI)
The remuneration benchmarking across A-REIT competitors and similar sized
companies highlighted that the maximum LTI opportunity at Dexus was below the
market. The Board has agreed to increase the maximum LTI opportunity from 120% to
150% of fixed remuneration for the CEO1 and from 60% to 75% of fixed remuneration for
other KMP. The Board believes the change will improve the market competitiveness of
our remuneration offering.
GMC minimum security
holding guidelines
Introduction of a minimum security holding guideline
The introduction of this guideline requires the Chief Executive Officer (CEO), and
members of Dexus’s Group Management Committee (GMC), to build and maintain a
holding of Dexus securities within 5 years. This guideline was introduced on 1 July 2018.
Minimum value of security holding as a percentage of fixed remuneration:
CEO = 150%
KMP = 75%
Non-KMP = 50%
2.4 Securities Trading Policy
The Securities Trading Policy provides guidance to Directors, Employees (including Key Management Personnel), Contractors and
Associates for ongoing compliance with legal obligations relating to trading or investing in financial products managed by Dexus.
The Policy prohibits employees from trading in financial products while they are in possession of Inside Information (non-public price
sensitive information) and hedging their exposure to unvested DXS securities. Trading in DXS securities or related products is only
permitted with the permission of the CEO.
The group also has Conflict of Interest and Insider Trading policies in place which extend to family members and associates
of employees.
1. Subject to approval at the 2018 Annual General Meeting.
6. Level 1 heading 6.1 Level 2 headingBody copy and other contentDexus 2018 Annual ReportDirectors’ Report 29
2.5 Remuneration governance
Board
Approves and has oversight of Dexus’s Remuneration Policy, Non-Executive Director
and Executive KMP remuneration and culture indicators.
Review the calculation of
financial incentive plan
performance measures.
Propose appointments,
succession plans,
policies, remuneration
structures and
remuneration outcomes
to the PRC for review
and approval or
recommendation to
the Board.
e
m itt e
om
dit C
u
A
M
a
n
a
g
e
m
e
nt
Risk C
o
m
m
i
t
t
e
e
People &
People &
Board
Remuneration
Remuneration
Committee
Committee
al
d ent extern
d visors
a
n
e
p
I n d e
Advises the PRC of
material risk issues,
behaviours and/or
compliance breaches.
During the year, the PRC
appointed Ernst & Young (EY) as
its independent remuneration
advisor. EY provided market
practice insights and trends
in relation to executive
remuneration practices. EY did
not make any remuneration
recommendations in FY18.
Egan Associates was
engaged in early FY18 to
provide a recommendation on
Non-Executive Directors’ fees
for the Dexus Wholesale
Property Fund.
Any advice provided by EY,
or any other remuneration
consultant, is used as an
input in making remuneration
decisions, and is not a
substitute for consideration
of relevant issues by each
member of the PRC.
People & Remuneration Committee (PRC)
The PRC is responsible for developing the remuneration
strategy, framework and policies for Non-Executive Directors,
Executive KMP and the Group Management Committee (GMC)
for Board approval.
The responsibilities of the PRC are outlined in the PRC’s Terms
of Reference available at www.dexus.com/remuneration-
committee, which is reviewed and approved annually by the
Board. The primary accountabilities of the PRC are:
- Reviewing and recommending to the Board for approval
Dexus’s Remuneration Policy, which applies to Executive KMP,
GMC members and all other Dexus employees
- Reviewing and approving the annual performance objectives
of the CEO and GMC members
- Recommending to the Board for approval CEO and GMC
members’ remuneration and incentive payments
- Reviewing and approving aggregate fixed remuneration
changes and annual incentive payments for all
Dexus employees
- Reviewing and recommending to the Board for approval
the Code of Conduct and Diversity Principles
Members
The PRC comprises of three independent Non-Executive
Directors: Penny Bingham-Hall (Chair), Nicola Roxon
and Richard Sheppard. PRC members have experience
in remuneration, leadership, human resources, risk
management and compliance which enables effective
oversight and governance of Dexus’s remuneration
framework. The PRC Chair, Penny Bingham-Hall, and Nicola
Roxon are also members of the Board Risk Committee.
Meetings
The PRC is required to meet at least three times per year.
In FY18, the PRC met five times to discuss and review
remuneration and people-related matters.
Accurate and complete Committee papers are provided
to all PRC members prior to meetings to enable timely,
considered and effective decision making. The PRC may
request additional information from management or external
advisors where required.
The PRC uses a range of inputs when assessing Executive
KMP performance and determining remuneration outcomes.
- Reviewing and approving processes for talent assessment,
- Financial performance is measured using audited
development and succession planning
financial measures
- Reviewing processes and metrics for measuring culture
- Management provide detailed examples of how
non-financial outcomes have been achieved
- Demonstration of the Dexus values and behaviours is
considered
- External remuneration benchmarking is provided by
independent external advisors
Under certain circumstances the PRC and Board may adjust
proposed remuneration outcomes or clawback Rights issued
under the Dexus LTI or STI Plans.
Directors’ Report
30
3. Remuneration structure
3.1 How performance translates into STI outcomes
The STI plan is aligned to security holder interests by:
- Encouraging executives to achieve year-on-year performance
in a balanced and sustainable manner (i.e. through a mix of
financial and non-financial performance measures)
- Mandatory deferral of 25% of each STI award into Rights
acting as a retention mechanism
50% Financial
Adjusted Funds From Operations
Return on Contributed Equity
$
+
50% Non-Financial
Strategy, Customer, Culture,
Leadership, Values
Environment and Safety
Fixed
Remuneration
Individual Target
STI Opportunity
100%
Group Scorecard
Outcomes
Individual
Contribution Factor
(not applicable to
Financial KPIs)
=
Individual STI
Outcome (Capped
at 125% of Target)
Each Executive KMP is awarded an individual STI outcome between zero and 125% of their target.
Scores are based on group performance and individual contribution.
STI plan structure
How much of the STI award is deferred?
25% of any award under the STI plan is deferred in the form
of Rights to DXS securities.
The rights vest in two equal tranches, 1 and 2 years after
being granted. Rights deferred under the STI plan are
subject to clawback and continued employment during
the vesting period.
The number of Rights awarded is based on 25% of the
awarded STI value divided by the volume weighted average
price (VWAP) of DXS securities 10 trading days either side of
the first trading day of the new financial year.
The remaining 75% of any award is paid in cash in August
following the announcement of the group’s annual results.
DXS securities are purchased on market to satisfy the
performance rights for the STI plan.
Are distributions paid on unvested Rights awarded under
the STI plan?
For the portion of STI deferred as Rights, participants are
entitled to the benefit of distributions paid on the underlying
DXS securities prior to vesting, through the issue of additional
Rights at the time of vesting.
When are STI awards forfeited?
Forfeiture will occur should the participant’s employment
terminate within 6 months of the grant date for any reason, or
if the participant voluntarily resigns or is terminated for cause
prior to the vesting date.
Notwithstanding the above, if a participant’s employment
is terminated for reasons such as retirement, redundancy,
reorganisation, change in control or other unforeseen
circumstances, the People & Remuneration Committee may
recommend to the Board that the executive should remain in
the plan as a ‘good leaver’.
6. Level 1 heading 6.1 Level 2 headingBody copy and other contentDexus 2018 Annual ReportDirectors’ Report 31
3.2 How performance translates into LTI outcomes
The LTI plan is aligned to security holders’ interests in the following ways:
- Encourages executives to make sustainable business
decisions within the Board-approved strategy of the group
- Aligns the financial interests of executives participating
in the LTI Plan with security holders through exposure to
DXS securities
The Board sets the performance conditions for the LTI plan on an annual basis. The two performance conditions under the LTI plan
are Adjusted Funds From Operations (AFFO) per security growth (implied)1 and average Return on Contributed Equity (ROCE). The
ROCE calculation excludes the impact of asset revaluations. These performance conditions were selected to align the plan outcomes
with commercial long-term performance that is within the executive’s ability to influence.
AFFO per security growth and average ROCE performance hurdles are set by the Board and are in line with Dexus’s target range
through the cycle. Both the AFFO per security growth and average ROCE performance targets will be disclosed retrospectively at the
end of the performance period. The group does not publish details of the hurdles prior to the testing of the first tranche at the end of
the first performance period (year 3), as this would result in the disclosure of commercially sensitive information in connection with the
group’s forecasts.
Adjusted Funds From Operations (AFFO)
Return on Contributed Equity (ROCE)
50% of the award is subject to performance against
50% of the award is subject to performance against
the group’s AFFO growth per security hurdle
the group’s average ROCE performance hurdle
AFFO is a key measure of growth and is calculated in line
with the Property Council of Australia (PCA) definition. AFFO
is Funds From Operations (FFO) as per the PCA’s definition
adjusted for maintenance capex, incentives (including rent
free incentives) given to tenants during the period and other
one-off items.
AFFO growth is measured as the implied1 compound annual
growth rate (CAGR) of the aggregate AFFO earnings per
security over both the three and four year vesting periods.
ROCE represents the annualised average rate of return to
security holders, calculated as a percentage, comprising AFFO
together with the net tangible asset impact from completed
developments, divided by the average contributed equity
during the period.
ROCE is measured as the per annum average at the respective
conclusion of the three and four year vesting periods.
Vesting under both the AFFO growth and average ROCE measures are on a sliding scale per security against
performance conditions set by the Board.
Performance
Below Target performance
Target performance
Between Target and Outperformance
Outperformance
LTI plan structure
Vesting Outcome
Nil vesting
50% vesting
Straight line vesting
100% vesting
How is the number of Performance Rights determined?
The number of Performance Rights granted is the participant’s
LTI grant value (based on a percentage of fixed remuneration)
divided by the VWAP of DXS securities ten trading days either
side of the first trading day of the new financial year. The
methodology computes grants based on ‘face value’ rather
than ‘fair value’.
The maximum LTI opportunity is set at 120% of fixed
remuneration for the CEO, 60% for other Executive KMP and 36%
for other participants. In FY19 the maximum LTI opportunity will
increase to 150% of fixed remuneration for the CEO and 75% for
Executive KMP.
Do participants receive distributions on unvested LTI awards?
Participants are not entitled to distributions paid on underlying
DXS securities during the performance period prior to
Performance Rights being tested for vesting.
When are LTI awards forfeited?
If the performance conditions are not met, Performance Rights
relating to that tranche will be forfeited. There is no retesting
of forfeited Rights. Performance rights are subject to clawback
at the discretion of the Board.
Additionally, forfeiture will occur should the participant’s
employment terminate within 12 months of the grant date
for any reason, or if the participant voluntarily resigns or is
terminated for cause prior to the vesting date.
Notwithstanding the above, if a participant’s employment
is terminated for reasons such as retirement, redundancy,
reorganisation, change in control or other unforeseen
circumstances, the People & Remuneration Committee
may recommend for approval by the Board that the
participant remain in the plan as a ‘good leaver’.
How is the LTI plan administered?
The administration of the LTI plan is supported by the LTI
plan rules.
DXS securities are purchased on market (for all participants
including the CEO) to satisfy the performance rights for the
LTI plan.
The Board retains the right to amend, suspend or cancel
the LTI plan at any time.
1. The implied compound annual growth rate refers to the nominal growth per annum that is required to achieve the target AFFO earnings per security
over the vesting period.
Directors’ Report 32
4. FY18 Dexus performance highlights
Five year performance
FY18
FY17
FY16
FY15
FY14
Funds From Operations (FFO)
Adjusted Funds From
Operations (AFFO)
Net Profit After Tax
AFFO per security
Distribution per security
Return on Equity (ROE)
Return on Contributed
Equity (ROCE)
Closing Dexus security price
NTA per security
Gearing (look-through)
(cents)
(cents)
(%)
(%)
($)
($)
(%)
Customer satisfaction score
(/10)
Females in senior
management roles
(%)
($m)
($m)
653.3
485.5
617.7
439.7
610.8
413.9
($m)
1,728.9
1,264.2
1,259.8
47.7
47.8
19.8
7.6
9.71
9.64
24.1
8.3
35
42.7
43.51
19.3
n/a
9.02
7.53
30.7
8.0
29
45.4
45.47
18.2
7.6
9.48
8.45
26.71
8.0
33
4.8
544.5
369.8
618.7
40.4
41.04
11.5
n/a
7.30
6.68
28.5
7.9
26
446.6
310.7
406.6
37.96
37.566
6.7
n/a
6.666
6.366
33.7
7.7
26
4.6
87%
Employee
engagement score2
Listed office portfolio average
NABERS Energy rating
(stars)
4.9
4.8
4.7
Dexus Office portfolio
performance vs IPD3
16.1%
15.1%
14.9%
14.9%
13.2%
13.4%
Dexus Industrial portfolio
performance vs IPD3
14.1%
13.5%
13.8%
13.6%
12.7% 12.8%
11.9%
11.2%
12.5%
12.8%
11.8% 12.2%
Dexus Wholesale Property Fund
performance4
13.8%
14.1%
12.0%
12.2%
12.3%
11.1%
11.4%
10.3%
8.0%
7.1%
1 year
3 years
5 years
1 year
3 years
5 years
1 year
3 years
5 years
7 years
10 years
DXS Portfolio
Dexus Group
IPD
DXS Portfolio
Dexus Group
IPD
DWPF return
Benchmark return
1. As at 31 March 2018
Total Security holder return (TSR)
1. As at 31 March 2018
3. As at 30 June 2018
1 Year
3 Years*
5 Years*
10 Years*
Dexus
S&P/ASX 200 Property
Accumulation Index
p.a.
7.5%
13.0%
15.5%
p.a. 9.7%
p.a.
p.a. 14.4%
12.0%
p.a. 8.4%
p.a. 6.0%
p.a.
p.a.
Source: UBS Australia as at June 2018. *Annual compound returns
Relative TSR since listing in 2004
Dexus Total Security
holder Return
S&P/ASX200 Property
Accumulation Index
Source: UBS Australia for year to 30 June 2018.
1. FY17 pro forma gearing is adjusted for post 30 June 2017 acquisitions.
2. Employee engagement score maintained top quartile performance.
3. As at 31 March 2018.
4. As at 30 June 2018.
5. The Net Promoter Score (NPS) is calculated as the difference between the percentage of Promoters and Detractors.
6.
The NPS is not expressed as a percentage but as an absolute number between -100 and +100.
In November 2014, Dexus completed a one-for-six security consolidation and this number has been adjusted to
reflect this.
Distribution and AFFO
per security growth
5.1%
Return on Contributed Equity
7.6%
Customer Net
Promoter Score5
32
Progressed minimum 5 star
NABERS Energy rating across
89%
of the office portfolio towards
target of 1,000,000 sqm by 2020
6. Level 1 heading 6.1 Level 2 headingBody copy and other content35030025020015010050Sep-04Dec-05Mar-07Jun-08Sep-09Dec-10Mar-12Jun-13Sep-14Dec-15Mar-17June-18Dexus 2018 Annual ReportDirectors’ Report
5. FY18 CEO performance
The below summarises the CEO’s performance relative to the FY18 CEO performance scorecard.
Key:
Culture
Alignment to
performance
Market competitive
Sustainable
Simple and transparent
Strategic objectives
Remuneration
principle
CEO
weighting
Result
Performance detail
33
Financial performance
Group Financial Performance
- Adjusted Funds from Operations
(AFFO) growth
- Return on Contributed
Equity (ROCE)
- Return on Equity (ROE)
Non-Financial performance
Leadership in Office
- Outperform 3 and 5-year
Property Fund Index (IPD) returns
- Improve office customer Net
Promoter Score (NPS)
- Develop workspace capabilities
- Introduce new customers to
the platform
Funds Management Partner of Choice
- Outperform 3 and 5-year
benchmarks
- Launch and achieve targets
for Healthcare Fund
Customer, Culture and Environment
- Increase brand recognition
- Improve culture and
engagement indicators
- Improve overall customer NPS
- Maintain strong investor
relationships
- Increase Corporate
Responsibility & Sustainability
awareness and rankings in
industry surveys
Safety
- Provide a safe work
environment with zero
fatalities
- Safety audit score above
85%
Values and behaviours
- Role model values, leadership
behaviours, collaboration
and inclusiveness
Outperformance
- AFFO per security growth = 5.1%
- ROCE = 7.6%
- ROE = 19.8%
50%
Below
Target Above
15%
Target
- Dexus and group office portfolios
outperformed IPD over 1, 3 and
5-year time periods
- Office customer NPS increased
Below
Target Above
from +31 to +33
- Developed workspace capability plan
- Launched 5 new customer initiatives
- Added more than 220 new customers
to the platform
Target
- All funds performed strongly with DWPF
achieving top quartile performance
15%
Below
Target Above
- Completed first round equity
raising for Healthcare Wholesale
Property Fund
- Planning underway that will see
the launch of new unlisted funds or
partnerships over the next 12-18 months
7.5%
Outperformance
- Increased brand perception
and recognition
- Improved employee engagement
score to 87% from 84%
Below
Target Above
- Increased overall customer NPS
to +32 from +31
- Maintained strong investor
perception ratings
- Achieved 1st ranking in global listed
office category and 3rd overall in
2017 GRESB survey
- Launched new goal to reach Net Zero
emissions by 2030
Target
- Improved safety culture across
the group
- Zero fatalities
- Achieved an average safety audit
Below
Target Above
score of 97%
5%
Outperformance
- Led internal initiatives focused on
7.5%
Below
Target Above
leadership development and culture
- Recognition through citations
including WGEA Employer of Choice
for Gender Equality 2018
- Achieved gender diversity targets and
established new 40:40:20 target
- Achieved gender pay equity in
like-for-like roles
Directors’ Report 34
6. Remuneration outcomes
6.1 STI awards for FY18 performance
The STI awards made to each Executive KMP with respect to their performance during the year ended 30 June 2018 are provided
below. The 75% cash component will be paid in August 2018 following the approval of statutory accounts and announcement of the
group’s annual results. This payment will form a part of the FY19 cash earnings for Executive KMP.
Executive KMP
Darren J Steinberg
Ross G Du Vernet
Kevin L George
Alison C Harrop
Deborah C Coakley
STI target
% of fixed
remuneration
STI max
% of fixed
remuneration
100%
100%
100%
100%
100%
125%
125%
125%
125%
125%
STI award
($)
1,840,000
770,000
735,000
708,750
603,750
% of
target
STI awarded
% of
maximum
STI awarded
% of
maximum
STI forfeited
% of
STI award
deferred
115%
110%
105%
105%
105%
92%
88%
84%
84%
84%
8%
12%
16%
16%
16%
25%
25%
25%
25%
25%
6.2 Deferred STI and LTI grants
The number of Rights granted to Executive KMP is determined by dividing the Deferred STI value and LTI grant value by the VWAP of
DXS securities ten trading days either side of 1 July 2018, which was $9.87759. The minimum value of the grant is nil if the performance
conditions are not met. The maximum value is based on the estimated fair value calculated at the time of grant and amortised in
accordance with the accounting standard requirements.
The below details the number of Rights granted to Executive KMP on 1 July 2018 under the Deferred STI and LTI plans.
DXS securities relating to Deferred STI and LTI grants are purchased on-market in accordance with ASX Listing Rule 10.15B and are
held by the Dexus Performance Rights Plan Trust until required.
Executive KMP
Plan name
remuneration
Maximum
Award as a
% of fixed
Performance
measure
Number
of Rights
granted
Fair value per
performance
right $1
Maximum
total value
of grant $2
1st Vesting
date 50%
2nd Vesting
date 50%
Darren J Steinberg
Ross G Du Vernet
Kevin L George
Alison C Harrop
Deborah C Coakley
Deferred STI
LTI
Deferred STI
LTI
Deferred STI
LTI
Deferred STI
LTI
Deferred STI
LTI
25%
150%
25%
75%
25%
75%
25%
75%
25%
75%
Nil
AFFO
ROCE
Nil
AFFO
ROCE
Nil
AFFO
ROCE
Nil
AFFO
ROCE
Nil
AFFO
ROCE
46,570
121,487
121,487
19,488
28,473
28,473
18,602
28,473
28.473
17,938
27,524
27,524
15,280
22,778
22,778
9.88
459,999
1 July 2019
1 July 2020
8.181
993,764
993,764
1 July 2021
1 July 2022
9.88
192,494
1 July 2019
1 July 2020
8.181
232,909
232,909
1 July 2021
1 July 2022
9.88
183,743
1 July 2019
1 July 2020
8.181
9.88
8.181
232,909
232,909
1 July 2021
1 July 2022
177,184
1 July 2019
1 July 2020
225,146
225,146
1 July 2021
1 July 2022
9.88
150,930
1 July 2019
1 July 2020
8.181
186,324
186,324
1 July 2021
1 July 2022
1. Fair value for the Deferred STI reflects the number of rights multiplied by the VWAP of DXS securities 10 days either side of 1 July 2018 ($9.87759). Fair value
for the LTI reflects the average valuation ($8.18) of both tranches as provided by EY under the Black-Scholes Analytic model. Tranche 1 was valued at
$8.38 and tranche 2 was valued at $7.98.
2. The maximum total value of the grant reflects the numbers of rights granted multiplied by the fair value per performance right.
6. Level 1 heading 6.1 Level 2 headingBody copy and other contentDexus 2018 Annual ReportDirectors’ Report 35
6.3 Performance of LTI awards which vested during FY18
AFFO and ROCE were established as the performance hurdles in 2016, simplifying the plan and providing greater LTI plan alignment with
the business strategy and the metrics that drive long-term company performance. Prior grants had four performance hurdles including
two relative measures (TSR and ROE). The comparator group included specified comparators for 2013 and prior years but transitioned
to the following indexes from 2014:
- Relative TSR - S&P/ASX200 A-REIT Index
- Relative ROE - Mercer IPD Core Wholesale Property Fund Index
The second tranche of the 2013 LTI plan and the first tranche of the 2014 LTI plan vested for participating Executive KMP on
1 July 2017. The vesting outcome of 100% for both tranches was determined by the Board, referencing the previously approved
performance hurdles.
Results of each performance condition for the second tranche of the 2013 LTI Plan:
Performance condition
Weighting
Hurdle range
Group result
Vesting outcome
Funds from Operations growth1
Average Return on Equity2
Relative Total Security holder Return3
Relative Return on Equity4
25%
25%
25%
25%
3.0% to 5.5%
9.0% to 11.0%
Median to 75th
percentile
Median to 75th
percentile
8.1%
13.2%
2nd out of 6
2nd out of 7
Overall Result
25%
25%
25%
25%
100%
Results of each performance condition for the first tranche of the 2014 LTI Plan:
Performance condition
Weighting
Hurdle range
Group result
Vesting outcome
Funds from Operations growth5
Average Return on Equity6
Relative Total Security holder Return7
Relative Return on Equity8
25%
25%
25%
25%
4.0% to 6.0%
9.0% to 10.0%
Median to 75th
percentile
Median to 75th
percentile
6.8%
15.3%
2nd out of 17
2nd out of 14
Overall Result
25%
25%
25%
25%
100%
1. Funds from Operations (FFO) growth hurdle was measured on a linear scale for testing, with a 3.0% Compound Annual Growth Rate (CAGR) set as
the Target (where 50% would vest) and 5.5% set as the Outperformance hurdle (where 100% would vest). Dexus’s FFO growth result over the four-year
performance period was 8.1% resulting in full vesting from this performance condition.
2. Average Return on Equity (ROE) hurdle was measured on a linear scale for testing, with a 9.0% simple ROE average set as the target (where 50% would
vest) and 11.0% set as the Outperformance hurdle (where 100% would vest). Dexus’s average ROE result was 13.2% over the four-year performance period,
resulting in full vesting from this performance condition.
3. Relative Total Security Holder Return (TSR) was measured with reference to the TSR percentile rank of DXS against a comparator group of listed A-REIT
peers Investa Office Fund, SCA Property Group, The GPT Group, Vicinity Centres and Cromwell Property Group. A median rank was set as the Target
(where 50% would vest) and a 75th percentile or better rank was set as the Outperformance hurdle (where 100% would vest). Dexus’s relative TSR rank of
2nd out of 6 listed A-REIT peers over the four-year performance period, resulted in full vesting from this performance condition.
4. Relative ROE was measured with reference to the average ROE result achieved by DXS against a comparator group of unlisted property funds GPT
Wholesale Office Fund, ISPT Core Fund, Australian Prime Property Commercial Fund, AMP Capital Wholesale Office Fund, QIC Property Fund and
Australian Prime Property Retail Fund. A median rank was set as the Target (where 50% would vest) and a 75th percentile or better rank was set as the
Outperformance hurdle (where 100% would vest). Dexus’s relative ROE rank of 2nd out of 7 unlisted property peers over the four-year performance period,
resulted in full vesting from this performance condition.
5. FFO growth hurdle was measured on a linear scale for testing, with a 4.0% CAGR set as the Target (where 50% would vest) and 6.0% set as the
Outperformance hurdle (where 100% would vest). Dexus’s FFO growth result over the three-year performance period was 6.8% resulting in full vesting from
this performance condition.
6. Average ROE hurdle was measured on a linear scale for testing, with a 9.0% simple ROE average set as the Target (where 50% would vest) and 10.0% set
as the Outperformance hurdle (where 100% would vest). Dexus’s average ROE result was 15.3% over the three-year performance period, resulting in full
vesting from this performance condition.
7. Relative TSR was measured with reference to the TSR percentile rank of DXS against a comparator group comprising members of the S&P/ASX 200’s
A-REIT Index. A median rank was set as the target (where 50% would vest) and a 75th percentile or better rank was set as the Outperformance hurdle
(where 100% would vest). Dexus’s relative TSR rank of 2nd out of 17 listed A-REIT peers over the three-year performance period, resulted in full vesting
from this performance condition.
8. Relative ROE was measured with reference to the average ROE result achieved by DXS against a comparator group comprising the members of the
Mercer IPD Core Wholesale Property Fund Index. A median rank was set as the Target (where 50% would vest) and a 75th percentile or better rank
was set as the Outperformance hurdle (where 100% would vest), Dexus’s relative ROE rank of 2nd out of 14 unlisted property peers over the three-year
performance period, resulted in full vesting from this performance condition.
Directors’ Report 36
6.4 Actual FY18 remuneration awarded
The actual remuneration awarded during the year comprises the following elements:
- Cash salary including any salary sacrifice arrangements
- Superannuation benefits
- Other short-term benefits comprised of the wellbeing allowance and insurance arrangements provided to all employees
- STI cash payment to be made in August 2018 in recognition of performance during FY18 (noting that 25% of the award is deferred
and will be reported in future years)
- Deferred STI vested: the value of the deferred STI from prior years that vested on 1 July 2018 (being the number of rights that vested
multiplied by the VWAP for the five days prior to the vesting date)
- LTI: the value of performance rights that vested on 1 July 2018 (being the number of performance rights that vested multiplied
by the VWAP for the five days prior to the vesting date)
These values differ from the executive statutory remuneration table which has been prepared in accordance with statutory
requirements and accounting standards.
Executive
Cash Salary
($)
Super-
annuation
benefits
($)
Other short
term benefits
($)
STI cash
payment
($)
Deferred STI
– vested
LTI - vested
($)
($)
Total
($)
Darren J Steinberg
1,579,951
Ross G Du Vernet
Kevin L George
Alison C Harrop
Deborah C Coakley
679,951
679,951
654,951
554,951
20,049
20,049
20,049
20,049
20,049
4,689
1,380,000
441,852
1,960,596
5,387,137
2,042
4,054
5,340
2,236
577,500
176,411
354,862
1,810,815
551,250
177,007
427,768
1,860,080
531,563
142,789
109,838
1,464,530
452,813
137,648
177,323
1,345,019
6.5 Executive statutory remuneration
The total remuneration paid to Executive KMP for FY18 and FY17 is calculated in accordance with the AASB 124 Related Party
Disclosures. Amounts shown under Long-term benefits reflect the accounting expense recorded during the year with respect
to prior year deferred remuneration and awards that have or are yet to vest.
Short-term
benefits
Long-term
benefits
Security-based
benefits
Cash
salary
($)
STI
cash
award
($)
Annual
Leave
movement1
Other
short-
term
benefits
($)
Executive
KMP
Year
Super
benefits
($)
Term-
ination
benefits
($)
Long
Service
Leave
movement1
Deferred
STI plan
accrual
($)
LTI
plan
accrual
($)
Total
($)
FY18
1,579,951
1,380,000
(32,569)
4,689
20,049
FY17
1,580,384 1,320,000
–
37,679
–
–
–
–
–
–
–
–
19,616
–
1,608
477,301
Darren J
Steinberg
Craig D
Mitchell2
Ross G
Du Vernet
Kevin L
George
Alison C
Harrop
FY18
FY17
FY18
FY17
FY18
FY17
FY18
679,951
577,500
(4,275)
2,042
20,049
680,384
551,250
–
–
19,616
679,951
551,250
(19,949)
4,054
20,049
675,584
551,250
–
–
24,416
654,951
531,563
(21,661)
5,340
20,049
FY17
600,728
492,188
Deborah C
Coakley
FY18
554,951
452,813
FY17
545,900
431,250
–
–
–
–
19,616
2,236
20,049
–
29,100
FY18
4,149,755 3,493,125
(78,454)
18,362
100,244
Total
–
–
–
–
–
–
–
–
–
–
–
–
31,995
428,351
1,502,853
4,915,319
–
–
–
385,964
1,305,851
4,611,815
–
–
–
–
–
516,588
13,771
176,723
316,129
1,781,890
–
151,423
259,260
1,661,934
34,318
173,247
333,083
1,776,004
–
–
–
154,968
291,071
1,697,289
155,775
260,401
1,606,445
106,065
131,401
1,349,997
25,702
138,291
240,356 1,434,420
–
101,912
123,019
1,231,181
105,786
1,072,387
2,652,823 11,514,207
FY17
4,120,659 3,345,938
–
–
113,971
477,301
–
900,333
2,110,602 11,068,804
1. Leave movements have been included for the first time in FY18 to improve disclosures. The accounting value of these may be negative, for example,
where an Executive’s annual leave balance decreases as a result of taking more than the 20 days’ annual leave they accrue during the current year.
Long service leave accrues from 5 years service and the movement may be high in the first year of accrual.
2. Craig Mitchell ceased employment on 15 July 2016, with final payments made in early FY17.
6. Level 1 heading 6.1 Level 2 headingBody copy and other contentDexus 2018 Annual ReportDirectors’ Report
37
7. Terms of KMP service agreements
KMP service agreements detail the individual terms and conditions of employment applying to Executive KMP. The quantum
and structure of remuneration arrangements are detailed elsewhere in this report, with the termination scenarios and other key
employment terms detailed below:
Employment agreement
An ongoing Executive Service Agreement or individual contract.
CEO
Other Executive KMP
Termination by
the Executive
Termination by Mr Steinberg requires a 6 month
notice period. The group may choose to place
Mr Steinberg on ‘leave’ or make a payment in
lieu of notice at the Board’s discretion.
Termination by other Executive KMP requires a
3 month notice period. The group may choose to
place the Executive on ‘leave’ or make a payment
in lieu of notice at the Board’s discretion.
All unvested STI and LTI awards are forfeited in
this circumstance.
All unvested STI and LTI awards are forfeited in
this circumstance.
Termination by the
group without cause
If the group terminates the Executive without cause, the Executive is entitled to a combined
maximum notice and severance payment of 12 months fixed remuneration. The Board may (in its
absolute discretion) also approve a pro-rata STI payment.
Depending on the circumstances, the Board has the ability to treat the Executive as a ‘good leaver’,
which may result in the Executive retaining some or all of the unvested Deferred STI or LTI.
Termination by the
group with cause
Other contractual
provisions and
restrictions
No notice or severance is payable.
All KMP service agreements include standard clauses covering intellectual property, confidentiality,
moral rights and disclosure obligations.
Directors’ Report 38
8. Non-Executive Directors’ remuneration
8.1 Changes for FY19
There are no changes proposed to Non-Executive Directors’ remuneration in FY19.
8.2 Non-Executive Directors’ remuneration
Non-Executive Directors’ fees are reviewed annually by the Committee using information from a variety of sources, including:
- Publicly available remuneration data from ASX listed companies with similar market capitalisation and complexity
- Publicly available remuneration data from A-REITs
- Information supplied by external remuneration advisors, including EY
Other than the Chair who receives a single base fee, Non-Executive Directors receive a base fee plus additional fees for membership
of Board Committees. Non-Executive Directors do not participate in incentive plans or receive any retirement benefits other than
statutory superannuation contributions.
The Board fee structure (inclusive of statutory superannuation contributions) for FY17 and FY18 is provided below.
Committee
Director’s Base Fee (DXFM)
Board Risk Committee
Board Audit Committee
Board Nomination Committee
Board People & Remuneration Committee
DWPL Board
Year
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
Chair
($)
400,0001
400,0001
30,000
30,000
30,000
30,000
15,000
15,000
30,000
30,000
n/a2
55,000
Member
($)
170,000
170,000
15,000
15,000
15,000
15,000
7,500
7,500
15,000
15,000
30,000
22,500
1. The Board Chair receives a single fee for service, including service on Board Committees.
2.
In 2018 the DWPF Chair was transitioned to a third party Non-Executive Director role. Effective 1 April 2018, the member fees for the DWPF Board were
increased from $22,500 to $30,000.
Total fees paid to Non-Executive Directors for the year ended 30 June 2018 remained within the aggregate fee pool of $2,500,000
per annum which was approved by security holders at the AGM in October 2017.
8.3 Non-Executive Directors’ security holding requirement
Non-Executive Directors are expected to hold a minimum of 16,500 DXS securities. Newly appointed Directors are expected to
acquire the minimum security holding within three years of their appointment.
Securities held by Non-Executive Directors are subject to the group’s security and insider trading policies. No additional remuneration
is provided to Directors to purchase these securities.
As at 30 June 2018, all Directors met the minimum security holding requirement, except for Mr Ford who has until 2020 and Ms Roxon
who has until 2021 to satisfy this requirement. The relevant interests of each Non-Executive Director in DXS securities are shown in
section 8.5.
6. Level 1 heading 6.1 Level 2 headingBody copy and other contentDexus 2018 Annual ReportDirectors’ Report 8.4 Non-Executive Directors’ remuneration table
This summary of the actual cash and benefits received by each Non-Executive Director for the year ended 30 June 2018 is prepared
in accordance with AASB 124 Related Party Disclosures.
39
Non-Executive Director
W Richard Sheppard
Elizabeth A Alexander AM
Penny Bingham-Hall
John C Conde AO
Tonianne Dwyer
Mark H Ford
Nicola Roxon
Peter B St George
Total
1.
Includes Director fees and insurance contributions.
8.5 Security movements
Non-Executive Director
W Richard Sheppard
Elizabeth A Alexander AM
Penny Bingham-Hall
John C Conde AO
Tonianne Dwyer
Mark H Ford2
Nicola Roxon3
Peter B St George
Post
employment
benefits
(superannuation)
($)
Short-term
benefits1
($)
Other
long-term
benefits
($)
379,951
380,384
173,516
210,384
198,396
189,008
194,635
189,498
221,097
217,884
184,610
117,199
143,706
-
196,347
196,347
20,049
19,616
16,484
21,206
18,653
17,956
18,490
18,002
20,227
19,616
17,352
11,134
13,592
-
18,653
18,653
1,692,258
1,500,706
143,500
126,183
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Year
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
Total
($)
400,000
400,000
190,000
231,591
217,049
206,964
213,125
207,500
241,324
237,500
201,962
128,333
157,298
-
215,000
215,000
1,835,758
1,626,888
Number of
securities
held at
1 July 2017
Number of
securities
held at
30 June 2018
Minimum #
of securities1
Movement
70,090
16,667
16,534
16,667
16,667
1,667
–
17,333
nil
nil
nil
nil
nil
nil
nil
nil
70,090
16,667
16,534
16,667
16,667
1,667
–
17,333
16,500
16,500
16,500
16,500
16,500
16,500
16,500
16,500
1. Directors are required to attain the minimum number of securities within three years of appointment.
2. Mark H Ford was recently appointed to the Board and has until 2020 to attain the minimum number of securities.
3. Nicola Roxon was recently appointed to the Board and has until 2021 to attain the minimum number of securities.
Directors’ Report 40
9. Additional disclosures
9.1 Performance of LTI awards vesting in FY19
On 1 July 2018, the second tranche of the 2014 LTI plan and the first tranche in the 2015 LTI plan vested for participating Executive KMP.
The vesting outcome was determined by the Board, referencing the previously approved performance hurdles set and communicated
to participants upon the original Grant Dates of 1 July 2014 and 1 July 2015 respectively.
Results of each performance condition within tranche 2 of the 2014 LTI plan:
Performance condition
Weighting
Hurdle range
Group result
Vesting outcome
Funds from Operations growth
Average Return on Equity
Relative Total Security Holder Return
Relative Return on Equity
25%
25%
25%
25%
4.0% to 6.0%
9.0% to 10.0%
Median to 75th
percentile
Median to 75th
percentile
5.7%
19.9%
6th of 17
2nd of 16
Overall Result
93.1%
100%
87.5%
100%
95.15%
Results of each performance condition within tranche 1 of the 2015 LTI plan:
Performance condition
Weighting
Hurdle range
Group result
Vesting outcome
Adjusted Funds from Operations growth
Average Return on Equity
Relative Total Security Holder Return
Relative Return on Equity
25%
25%
25%
25%
3.0% to 5.0%
9.0% to 10.0%
Median to 75th
percentile
Median to 75th
percentile
5.8%
19.1%
5th of 17
2nd of 16
Overall Result
100%
100%
100%
100%
100%
Further details and quantification in dollars of these vesting tranches will be provided in the FY19 Remuneration Report.
9.2 Deferred STI and LTI awards which vested during FY18
The summary below outlines the number of Rights which vested under the Deferred STI and LTI plans during FY18. The vesting date
for all Rights was 1 July 2017. No rights lapsed during FY18.
Executive KMP
Darren J Steinberg
Ross G Du Vernet
Kevin L George
Alison C Harrop2
Deborah C Coakley
Plan name
Deferred STI
LTI
Deferred STI
LTI
Deferred STI
LTI
Deferred STI
Deferred STI
LTI
Grant
date
1/07/2015
1/07/2016
1/07/2013
1/07/2014
1/07/2015
1/07/2016
1/07/2013
1/07/2014
1/07/2015
1/07/2016
1/07/2013
1/07/2014
1/07/2015
1/07/2016
1/07/2015
1/07/2016
1/07/2013
1/07/2014
Number of
Rights which
vested
Market value
at vesting 1
($)
Tranche
2
1
2
1
2
1
2
1
2
1
2
1
2
1
2
1
2
1
26,200
20,333
94,015
102,971
9,193
7,705
19,751
18,388
10,572
7,762
27,177
22,985
2,206
5,451
5,516
5,993
9,480
8,826
258,616
200,703
928,013
1,016,416
90,742
76,056
194,960
181,506
104,354
76,691
268,261
226,883
21,778
53,803
54,445
59,155
93,576
87,121
1. Market Value at vesting is the VWAP of DXS securities for the five day period before the vesting date.
2. Alison Harrop was not employed at the time of the 2013 or 2014 LTI grant.
6. Level 1 heading 6.1 Level 2 headingBody copy and other contentDexus 2018 Annual ReportDirectors’ Report 9.3 KMP unvested security rights outstanding
The table below shows the number of unvested Rights held by Executive KMP as at 30 June 2018 under the Deferred STI and LTI plans.
The STI and LTI awards in respect of which the elements below are deferred elements were disclosed in prior year remuneration reports.
41
Executive KMP
Darren J Steinberg
Ross G Du Vernet
Kevin L George
Alison C Harrop
Plan
type
Deferred STI
LTI
Deferred STI
LTI
Deferred STI
LTI
Deferred STI
LTI
Grant
date
1/07/2016
1/07/2017
1/07/2017
1/07/2014
1/07/2015
1/07/2015
1/07/2016
Vesting
date
1/07/2018
1/07/2018
1/07/2019
1/07/2018
1/07/2018
1/07/2019
1/07/2019
1/07/2016
1/07/2020
1/07/2017
1/07/2020
1/07/2017
1/07/2016
1/07/2017
1/07/2017
1/07/2014
1/07/2015
1/07/2015
1/07/2016
1/07/2021
1/07/2018
1/07/2018
1/07/2019
1/07/2018
1/07/2018
1/07/2019
1/07/2019
1/07/2016
1/07/2020
1/07/2017
1/07/2020
1/07/2017
1/07/2016
1/07/2017
1/07/2017
1/07/2014
1/07/2015
1/07/2015
1/07/2016
1/07/2021
1/07/2018
1/07/2018
1/07/2019
1/07/2018
1/07/2018
1/07/2019
1/07/2019
1/07/2016
1/07/2020
1/07/2017
1/07/2020
1/07/2017
1/07/2016
1/07/2017
1/07/2017
1/07/2015
1/07/2015
1/07/2016
1/07/2021
1/07/2018
1/07/2018
1/07/2019
1/07/2018
1/07/2019
1/07/2019
1/07/2016
1/07/2020
1/07/2017
1/07/2020
1/07/2017
1/07/2021
Tranche
Number
of Rights
2
1
2
2
1
2
1
2
1
2
2
1
2
2
1
2
1
2
1
2
2
1
2
2
1
2
1
2
1
2
2
1
2
1
2
1
2
1
2
19,488
22,556
22,556
102,971
101,689
101,689
98,466
98,466
98,426
98,426
7,385
9.420
9,420
18,388
18,643
18,643
19,693
19,693
21,531
21,531
7,440
9,420
9,420
22,985
21,694
21,694
21,006
21,006
21,531
21,531
5,224
8,410
8,410
11,186
11,186
18,052
18,052
19,224
19,224
Directors’ Report 42
9.3 KMP unvested security rights outstanding continued
Executive KMP
Deborah C Coakley
Plan
type
Deferred STI
LTI
Grant
date
1/07/2016
1/07/2017
1/07/2017
1/07/2014
1/07/2015
1/07/2015
1/07/2016
Vesting
date
1/07/2018
1/07/2018
1/07/2019
1/07/2018
1/07/2018
1/07/2019
1/07/2019
1/07/2016
1/07/2020
1/07/2017
1/07/2020
1/07/2017
1/07/2021
9.4 Equity Investments
Held at 1 July 2017
Net Change
Held as at 30 June 2018
Securities
Deferred
STI
Total
Balance1 Securities
Deferred
STI
Total
Balance1 Securities
Deferred
STI
Total
Balance1
Darren J Steinberg
Tranche
Number
of Rights
2
1
2
2
1
2
1
2
1
2
5,744
7,369
7,369
8,826
9,660
9,660
17,232
17,232
17,686
17,686
Market
value as at
30 June 2018
$2
Minimum
security
holding
guideline
$3
211,317
63,127
274,444
243,519
1,473
244,992
454,836
64,600
519,436
5,100,530 2,400,000
Ross G Du Vernet
77,228
23,244
100,472
24,038
2,980
27,018
101,266
26,224
127,490
1,251,874
562,500
Kevin L George
63,113
24,625
87,738
Alison C Harrop
–
12,482
12,482
Deborah C Coakley
–
16,572
16,572
–
–
–
1,654
1,654
63,113
26,279
89,392
877,772
562,500
9,563
9,563
3,910
3,910
–
–
22,045
22,045
216,468
543,750
20,482
20,482
201,122
450,000
1. The following securities are included in the balance for the purpose of the guideline (1) Any DXS securities that the Executive or their related person
or entity hold (e.g. Family Trust), (2) Securities that the Executive acquires on vesting of awards granted under Dexus’s equity incentive plans; and (3)
Unvested equity granted that the Executive holds under Dexus’s equity incentive plans which are not subject to performance hurdles (e.g. deferred
short-term incentives).
2. Market Value as at 30 June 2018 is the VWAP of DXS securities for the five-day period up to and including 30 June 2018 ($9.81936).
3. A minimum security holding guideline was introduced on 1 July 2018, with all Executive KMP targeting to attain the minimum security holding by
1 July 2023. The value is calculated by reference to the 12-month average fixed remuneration for the relevant financial year. For existing Executive KMP
as at 1 July 2018, the guide is based on fixed remuneration as at 1 July 2018.
9.5 Other Transactions
There were no transactions involving an equity instrument (other than share based payment compensation) to KMP or related parties.
9.6 Loans
No loans were provided to KMP or related parties.
6. Level 1 heading 6.1 Level 2 headingBody copy and other contentDexus 2018 Annual ReportDirectors’ Report Operating and Financial Review
43
The Group’s financial performance for the year ended 30 June 2018 is summarised in the following section. In order to fully understand the
results, the Annual Report and full Financial Statements included in this Financial Report should be read in conjunction with this section.
Five year performance
Funds from Operations (FFO) ($m)
Adjusted FFO (AFFO) ($m)
Net profit after tax ($m)
FFO per security (cents)
AFFO per security (cents)
Distribution per security (cents)
Return on Equity (%)
Return on Contributed Equity (%)
One-Year Total Security holder return (%)
Net tangible asset backing per security ($)
Gearing (look-through) (%)
Duration of debt (years)
Customer satisfaction score (out of 10)
Females in Senior Management roles (%)
Listed office portfolio average
NABERS Energy rating (stars)
FY18
653.3
485.5
FY17
617.7
439.7
FY16
610.8
413.9
1,728.9
1,264.2
1,259.8
64.2
47.7
47.8
19.8
7.6
7.5
9.64
24.1
7.0
8.3
35
4.9
63.8
45.4
45.47
18.2
7.6
10.1
8.45
26.72
5.6
8.0
33
4.8
63.1
42.7
43.51
19.3
n/a
30.3
7.53
30.7
5.5
8.0
29
4.8
FY15
544.5
369.8
618.7
59.5
40.4
41.04
11.5
n/a
15.8
6.68
28.5
5.7
7.9
26
4.7
FY14
446.6
310.7
406.6
41.71
37.91
37.561
6.7
n/a
9.9
6.361
33.7
5.2
7.7
26
4.6
Review of Operations
Dexus has adopted Funds from Operations (FFO) as its underlying earnings measure which has been defined in accordance with
the guidelines established by the Property Council of Australia for its reporting with effect from 1 July 2014.
In accordance with Australian Accounting Standards, net profit includes a number of non-cash adjustments including fair value
movements in asset and liability values. FFO is a financial measure of real estate operating performance and is determined by
adjusting net profit after finance costs and taxes for certain items which are non-cash, unrealised or capital in nature.
The Directors consider FFO to be a measure that reflects the underlying performance of the Group.
The following table reconciles between profit attributable to stapled security holders, FFO and distributions paid to stapled
security holders.
Net profit for the year attributable to stapled security holders
Net fair value gain of investment properties
Impairment of inventories
Net fair value (gain)/loss of derivatives and interest bearing liabilities
Net (gain)/loss on sale of investment properties
Incentive amortisation and rent straight-line3
Coupon income, rental guarantees received and other
Amortisation of intangible assets
Transaction costs
Non-FFO tax expense
Funds from Operations (FFO)4
Retained FFO5
Distributions
FFO per security (cents)
Distribution per security (cents)
Net tangible asset backing per security ($)
30 June 2018
($m)
30 June 2017
($m)
1,728.9
(1,201.8)
1,264.2
(704.7)
0.6
(8.3)
0.9
101.4
17.7
5.5
1.1
7.3
653.3
166.9
486.4
64.2
47.8
9.64
–
3.6
(70.7)
100.1
12.7
4.5
–
8.0
617.7
166.0
451.7
63.8
45.47
8.45
In November 2014, Dexus completed a one-for-six security consolidation and this number has been adjusted to reflect this.
1.
2. FY17 pro forma gearing is adjusted for post balance date acquisitions. Actual gearing was 22.1%.
3.
4.
5. Based on Dexus’s distribution policy to payout in line with free cash flow. The distribution payout ratio equated to 74.4% of FFO in FY18 and 73.1% of FFO in FY17.
Including cash, rent free and fit out incentives amortisation.
Including Dexus’s share of equity accounted investments.
Directors’ Report Directors’ Report
44
Operating and Financial Review
continued
Operating result
Performance of the Group
Dexus’s net profit after tax was $1,728.9 million, an increase of $464.7 million from the prior year (FY17: $1,264.2 million). The key drivers
of this movement included:
- Net revaluation gains of investment properties of $1,201.8 million, representing a 10.5% uplift across the portfolio, were $497.1 million
higher than the prior year (FY17: $704.7 million)
- FFO, which increased by $35.6 million resulting in FFO per security of 64.2 cents, an increase of 0.6%
- Partially offset by lower gains from the sale of investment properties compared to FY17
Valuation gains achieved across Dexus’s property portfolio primarily drove the $1.19 increase in net tangible assets (NTA) per security
to $9.64 over the year. The valuation uplift was driven primarily by the Sydney office portfolio where capitalisation rates have
compressed further, and the buoyant leasing market has delivered higher market rents.
The following table provides a summary of the key components of FFO and Adjusted Funds from Operations (AFFO) based on
the information provided in the Group Performance and Property Portfolio assets sections included in this Financial Report.
Office Property FFO
Industrial Property FFO
Total Property FFO
Management operations1
Group corporate
Net finance costs
Other (including tax)
Underlying FFO
Trading profits (net of tax)
Total FFO
Maintenance capex, lease incentives and leasing costs paid
Total AFFO2
The key drivers of the $35.6 million increase in FFO include:
30 June 2018
$m
30 June 2017
$m
603.8
132.7
736.5
52.5
(27.4)
(134.4)
(10.5)
616.7
36.6
653.3
(167.8)
485.5
567.4
114.8
682.2
46.3
(23.7)
(121.8)
(12.5)
570.5
47.2
617.7
(178.0)
439.7
- Office Property FFO of $603.8 million increased from FY17 as a result of like-for-like income growth of 4.5%, acquisitions including MLC
Centre in Sydney (Dexus’s 25% interest) and 100 Harris Street in Pyrmont, offset by asset sales including 11 Waymouth Street in Adelaide
(Dexus’s 50% interest) and Southgate Complex in Melbourne (remaining 50% tranche settled in May 2018)
- Industrial Property FFO increased by $17.9 million to $132.7 million due to like-for-like growth of 3.0% following a record year of leasing in
FY17 which significantly improved portfolio occupancy as well as income from acquisitions and completed developments
This was partially offset by:
- Finance costs net of interest revenue increased by $12.6 million driven by acquisitions, partially offset by the equity raising completed
in June 2017 and proceeds from asset sales used to repay debt
- The realisation of $36.6 million of trading profits (net of tax) representing a decrease of $10.6 million on the prior year
The underlying business, excluding trading profits, delivered FFO per security of 60.6 cents, and grew by 2.9% on the prior year.
Distributions
Distributions per security for the 12 months ended 30 June 2018 were 47.8 cents per security, up 5.1% on the prior year (FY17: 45.47
cents), with the distribution payout remaining in line with free cash flow, in accordance with Dexus’s distribution policy. The distribution
for the six months ended 30 June 2018 of 24.1 cents per security will be paid to Dexus Security holders on Thursday 30 August 2018.
Return on contributed equity and return on equity
Dexus achieved a Return on Contributed Equity3 (ROCE) for FY18 of 7.6% driven largely by AFFO.
Dexus delivered a Return on Equity4 (ROE) of 19.8% in FY18, driven by property revaluations and distributions, resulting in a six year
average ROE of 14.5%.
1. Management operations’ income includes development management fees.
2. AFFO is in line with the Property Council of Australia definition.
3. ROCE is calculated as AFFO plus the net tangible asset impact from completed developments divided by the average contributed equity during the period.
4. ROE is calculated as the growth in net tangible assets per security plus the distribution paid/payable per security divided by the opening net tangible
assets per security.
Dexus 2018 Annual Report Management Expense Ratio
Group corporate costs
Asset management costs
Total corporate and asset management costs
Closing funds under management (balance sheet only)
Group management expense ratio (MER)
45
30 June 2018
$m
30 June 2017
$m
27.4
16.0
43.4
13,338
33bps
23.7
15.6
39.3
11,4631
34bps
Group corporate costs increased to $27.4 million as a result of investment in platform initiatives while asset management costs
increased to $16.0 million as a result of investment in platform initiatives and completion of developments. Dexus’s MER2 reduced
to 33 basis points largely driven by investment property revaluation gains of $1.2 billion.
Property transactions
Dexus completed $2.0 billion of transactions for the group including the settlement of the acquisitions of the MLC Centre, Sydney
(Dexus’s 25% interest), 100 Harris Street, Pyrmont and 90 Mills Road, Braeside in addition to the divestment of 11 Waymouth Street,
Adelaide (Dexus’s 50% interest) and Dexus’s remaining 50% interest in Southgate, Melbourne. Other transactions included the Dexus
Office Partnership’s acquisition of 56 Berry Street, North Sydney and 140 George Street, Parramatta in addition to the sale of 46 Colin
Street, West Perth.
Post 30 June 2018, Dexus acquired 568 Wickham Street, Brisbane QLD and also entered into agreements to acquire industrial
development landbanks at 11-167 Palm Springs, Ravenhall, VIC (in which Dexus and DWPF each acquired a 50% interest), 425-479
Freeman Road, Richlands, QLD and 54 Ferndell Street, South Granville, NSW.
Dexus performance
The following sections review the FY18 performance of the Group’s key financial drivers: Property Portfolio, Funds Management
and Trading.
i) Property portfolio
Dexus remains focused on maximising the performance of its property portfolio through leasing and asset management activities,
with the property portfolio contributing to 89%3 of FFO in FY18.
Dexus increased the size of its direct portfolio to $13.3 billion from $12.2 billion4 at FY17. This movement was driven by revaluation gains
of $1.2 billion and acquisitions of $31.0 million5, which was partially offset by $449.0 million of divestments.
Office portfolio
Portfolio value:
Total area:
$11.0 billion
1,495,238 square metres
Area leased during the year:
242,957 square metres6
Key metrics
Occupancy by income
Occupancy by area
WALE by income
Average incentives6
Retention rate
Total return – 1 year
30 June 2018
30 June 2017
96.0%
95.7%
97.2%
97.0%
4.6 years
4.8 years
13.9%
54%
16.9%
14.5%
46%
14.1%
1. Actual closing funds under management at 30 June 2017.
2. Management Expense Ratio.
3. FFO contribution is calculated before finance costs, group corporate costs and tax.
4. Funds under management at 30 June 2017 adjusted for transactions settled up to 16 August 2017.
5. Transactions include properties which settled during FY18 and exclude the acquisitions of MLC Centre, in Sydney 100 Harris Street in Pyrmont
and 90-110 Mills Road in Braeside which were included in the FY17 pro forma direct portfolio amount.
Including Heads of Agreement and excluding development leasing.
6.
Directors’ Report 46
Directors’ Report
Dexus performance continued
Office portfolio continued
During the year, Dexus leased 242,957 square metres1 of office space across 293 transactions as well as 52,589 square metres of office
development space across 15 transactions, locking in future income streams.
It has been an excellent year for the portfolio in which Dexus has seen significant valuation gains driven by strong leasing
outcomes. Leasing has been supported by the buoyant markets of Sydney and Melbourne and assisted by the improving markets
of Perth and Brisbane. The property valuation reduced at 100 Harris Street in Pyrmont, driven by acquisition costs being written off,
increases in outgoings and additional capex to fund fitouts on vacant space. Dexus has maintained its focus on reducing incentives
and driving rents for popular properties, which is being captured in our returns and valuations.
The office portfolio delivered 4.5% like-for-like income growth and a 16.9% total return for the year which was driven by increased
market rents and leasing. Sydney office properties experienced strong effective rental growth.
Occupancy reduced marginally to 96.0% at 30 June 2018 (FY17: 97.2%) driven by the known departure of CBA at Sydney Olympic Park,
which was also reflected in the 54% tenant retention metric, providing the opportunity for Dexus to improve this position during FY19.
Tenant activity and market dynamics have remained positive across Dexus’s core office markets with strong levels of enquiry in Perth
converting to significant leasing at 240 St Georges Terrace and Kings Square as tenants seek to upgrade to better quality buildings
and centralise into the CBD.
Industrial portfolio
Portfolio value:
Total area:
$2.2 billion
1,322,557 square metres
Area leased during the year:
192,116 square metres1
Key metrics
Occupancy by income
Occupancy by area
WALE by income
Average incentives
Retention rate
Total return – 1 year
30 June 2018
30 June 2017
98.3%
98.8%
96.5%
96.6%
4.8 years
5.1 years
12.6%
48%
13.6%
14.5%
74%
12.6%
During the year, Dexus leased 192,116 square metres1 of industrial space across 91 transactions, with the portfolio continuing to benefit
from an uptick in logistics and e-commerce demand. As a result of this activity, portfolio occupancy further improved to 98.3%1 (FY17:
96.5%) and like-for-like income growth was 3.0% (FY17: 3.6%).
Portfolio weighted average lease expiry (WALE) reduced slightly to 4.8 years. Average incentives reduced to 12.6% (FY17: 14.5%) as
a result of leasing in the competitive Melbourne market.
Industrial portfolio retention reduced to 48% from 74% at 30 June 2017 as a number of leases were retired to reposition assets. The
industrial portfolio performance has improved over the past two years with occupancy increasing from 90.4% in FY16 to 98.3% in FY18.
Dexus’s industrial portfolio delivered a one-year unlevered total return of 13.6% (FY17: 12.6%).
Customer
Dexus continued to drive great customer experience outcomes during the year as evidenced by the strong overall Net Promoter
Score of +32 and customer satisfaction score of 8.3 out of 10 in the latest customer survey. These scores have improved, and survey
participation has increased on the back of the strength of Dexus’s customer relationships and despite the disruption that can
be caused when assets are under development.
FY19 Focus (Office and Industrial)
In FY19 Dexus will target $155-165 million of capital expenditure (including rent free incentives); target like-for-like income growth of
4-5% for the office portfolio and 2.5-3.5% for the industrial portfolio; maintain occupancy above 95%; undertake selective forward
leasing to manage expiry risk; and capture upside in the Sydney market.
1.
Including Heads of Agreement.
Dexus 2018 Annual ReportDirectors’ ReportOperating and Financial Reviewcontinued 47
Development
Dexus utilises its development expertise to deliver best-in-class office buildings, city retail amenity and prime industrial facilities.
Development provides Dexus with access to stock and leads to improved portfolio quality and diversification, attracts revenues
through development management fees and delivers on capital partner strategies.
Dexus has a significant opportunity to drive future value through its $4.2 billion group development pipeline, which is diversified
across uses and locations and is the most efficient way to access quality product at this point in the cycle. Dexus is also short listed or
in an exclusive position on circa $2 billion of future potential concept development projects.
Two office projects at 180 Flinders Street in the Melbourne CBD and 12 Creek Street – The Annex in Brisbane were activated, and in
July 2018 development works commenced at 240 St Georges Terrace in Perth. Works also progressed at 100 Mount Street, North
Sydney, where NBN Co. was secured as a new customer across 20,364 square metres. In aggregate, 50% of the space is already
committed1 at these four key office developments with completions scheduled over the next four years.
The extensive ground floor works at 240 St Georges Terrace include the creation of a new street entry, a new north facing outdoor
terrace on level 16 for functions, new end-of-trip facilities and gymnasium, and an improved retail offering. On-floor upgrades will
commence from October 2018 prior to Woodside’s lease expiry, with 57% of the impending Woodside vacancy now solved.
Post 30 June 2018, Dexus replenished the industrial development pipeline by entering into agreements to acquire three industrial
development sites, one of which will be acquired jointly with DWPF. These developments have a combined end value of circa
$700 million and will be built out over the next five to seven years. They provide the opportunity to leverage Dexus’s extensive
market knowledge, development and leasing capabilities and track record in each of these markets.
Dexus allocates up to 15% of funds under management (FUM) across its listed portfolio to development and trading/value-add
activities. Currently circa 7.4% of FUM is allocated to these activities providing earnings accretion and enhancing total return.
FY19 Focus
In FY19 Dexus will complete the development of 100 Mount Street, North Sydney; advance and de-risk leasing of key projects in the
development pipeline; and activate new opportunities.
ii) Funds management
Dexus’s Funds Management business represents over half of the Group’s $27.2 billion FUM and its $2.0 billion development pipeline will
drive organic growth across the platform. Third party funds under management increased to $13.9 billion, up 9.4% from 30 June 2017,
driven by acquisitions, developments and revaluations, partially offset by divestments.
The activities undertaken by the Funds Management business include managing office, industrial, retail and healthcare investments
on behalf of third party partners and funds. These activities result in Dexus earning fees for its funds management, property
management, leasing and development management services.
All funds delivered strong performance, with DWPF achieving top quartile performance and a one-year total return of 13.8%,
outperforming its benchmark over one, three, five, seven and ten years. The Dexus Office Partnership delivered a one-year unlevered
total property return of 16.0% and an annualised unlevered total property return of 14.9% since inception.
Growth over the next 12-18 months is supported by the $647 million committed development pipeline. Planning is also now underway
that will see the launch of new unlisted funds or partnerships over the same time period.
Dexus completed the first round equity raising for its unlisted Healthcare Wholesale Property Fund which was seeded with
approximately $370 million of properties and an additional pipeline of high quality opportunities with an estimated on completion
value of $460 million.
The Healthcare Wholesale Property Fund diversifies and expands Dexus’s Funds Management business in a scalable sector that is
attractive to investors, due to the low volatility of returns. Demand for healthcare is also non-discretionary, which insulates the sector
from economic cycles.
FY19 Focus
In FY19, Dexus will continue to drive strong performance across all of its unlisted funds and partnerships, while progressing the launch
of new unlisted funds or partnerships.
1.
Including Heads of Agreement signed post 30 June 2018.
Directors’ Report 48
Directors’ Report
Dexus performance continued
iii) Trading
Trading is a capability that involves the identification of opportunities, repositioning to enhance value, and realising value through divestment.
Trading properties are either acquired with the direct purpose of repositioning or development, or they are identified in Dexus’s
existing portfolio as having value-add potential and subsequently transferred into the trading trust to be repositioned, and then sold.
Since 2010, Dexus has been undertaking trading activities and recognising trading profits in its FFO. Over the past seven years, Dexus
has sold and settled on 12 trading properties which have realised an aggregate $267 million of trading profits pre-tax at an average
unlevered project IRR of 30%.
Trading profits of $36.6 million net of tax were achieved in FY18 following the sale of 105 Phillip Street and 140 George Street, both
located in Parramatta.
The exchange of contracts to sell 32 Flinders Street, Melbourne, has de-risked FY19 trading profits. Future projects were progressed
with 201 Elizabeth Street, Sydney added to the pipeline, and planning approval received for Stage 1 of 12 Frederick Street, St Leonards
(North Shore Health Hub).
A total of six projects diversified across sectors and trading strategies have been earmarked to deliver trading profits of $260-280 million
pre-tax in future years. Other opportunities include stage 2 of 12 Frederick Street in St Leonards, Lakes South in Botany and Gladesville, NSW.
FY19 Focus
In FY19, Dexus will target trading profits of $35-40 million, net of tax, and advance future opportunities.
iv) Financial position (look-through)
Office investment properties
Industrial investment properties
Healthcare investment properties
Other 1
Total assets
Borrowings
Other liabilities
Net tangible assets
Total number of securities on issue
NTA ($)
30 June 2018
$m
30 June 2017
$m
11,038
2,245
54
572
13,909
(3,445)
(658)
9,806
9,511
1,952
-
490
11,953
(2,783)
(582)
8,588
1,017,196,877
1,016,967,300
9.64
8.45
Total look-through assets increased by $1,956 million primarily due to $770.4 million of acquisitions, development capital expenditure
and $1,201.8 million of property valuation increases, partially offset by $478.9 million of divestments.
Total look-through borrowings increased by $662 million due to funding required for the acquisitions and development capital
expenditure mentioned above, offset by asset sales during the year.
1. Excludes the deferred tax liability on management rights in line with accounting changes as disclosed in the FY17 financial statements.
Dexus 2018 Annual ReportDirectors’ ReportOperating and Financial Reviewcontinued 49
Capital Management
Cost of debt:
Duration of debt:
Gearing (look through)1:
S&P/Moody’s credit rating:
4.2%
7.0 years
24.1%1
A-/A3
Dexus continued to maintain a strong and conservative balance sheet. Gearing1 reduced to 24.1% from 26.7%, remaining below
the 30-40% target range, as a result of the receipt of proceeds from sold properties and property revaluation gains offset by
development costs and property acquisitions.
Since announcing plans in February 2018 to initiate an on-market securities buy-back of up to 5% of Dexus securities on issue, Dexus
has acquired and cancelled 207,665 securities. Dexus will continue to utilise the buy-back where there is an opportunity to enhance
investor returns.
Total debt duration extended to 7.0 years as a result of Dexus’s largest ever debt raising via the US Private Placement market valued
at $653 million. Dexus’s strong balance sheet provides the capacity to fund projects in its current and future development pipeline.
Dexus has minimal short-term refinancing requirements and remains within all of its debt covenant limits and target ranges.
FY19 Focus
In FY19, Dexus will focus on preserving its debt duration and will continue to seek further debt diversification options.
Outlook
The majority (80-90%) of Dexus’s earnings are derived from rental income from its direct property portfolio, with the remainder derived
from the Funds Management and Trading businesses. Key lead indicators and factors affecting the outlook of each of these areas of
the business are outlined below.
Within Australia, economic growth is rebalancing between the states with Queensland and WA forecast to catch up to Victoria
and NSW over the next couple of years. While buoyed by infrastructure investment, Victoria and NSW may face some additional
headwinds in FY19 and FY20 as weakening housing construction drags on employment growth.
The low and steady cost of capital continues to support investment demand for real estate. The maintenance of reasonably wide
spreads between real estate yields and government bond yields has supported investment activity to date in a maturing pricing
cycle. Over time, pricing will be sensitive to a normalisation of interest rate yields, however such rises still seem some way off.
i) Property portfolio
Office
The performance of office markets is influenced by the strength of the broader economy and business confidence, the supply and
demand characteristics of particular CBD markets and the leasing characteristics of individual properties.
Office markets continue to perform well. Modest levels of supply in Sydney and Melbourne helped push vacancy rates lower to circa 4.5%
and we expect further falls with vacancy expected to fall below 3.5% in Sydney in FY19. Perth continued its recovery while the overall
Brisbane market showed mild improvement.
The outlook for office demand is positive in the short term due to solid employment growth and positive business confidence. The
outlook is for mild upward pressure on rents in the short term in Sydney and Melbourne, with growth declining on a two to three-year
timeframe as new supply materialises.
A key theme for office markets is growth in small office users as service firms shift to more collaborative, outsourced modes of working
and the IT sector continues its mini-boom built on mobile applications, big data, fintech and social media.
1. Adjusted for cash and debt in equity accounted investments.
Directors’ Report 50
Directors’ Report
Industrial
The industrial sector is in a growth phase with demand running ahead of supply. Demand is expected to remain solid in the year
ahead given population growth and infrastructure investment are supporting economic activity. Sydney, Melbourne, and to a lesser
extent Brisbane, are well placed to benefit.
E-commerce is emerging as a significant driver of demand as online sales expand at double digit growth rates, and online retailers
and fulfilment providers seek to increase scale.
The outlook for rents is likely to remain positive, particularly in land constrained areas in Sydney and Melbourne. Conditions in
Brisbane are projected to continue to improve in the short-term as the economy rebounds, while Perth appears to have bottomed.
ii) Funds management
Dexus’s Funds Management business’s current exposure is 51% to office properties, 11% to industrial properties, 37% to retail properties
and 1% to healthcare properties. Its office and industrial property performance will be influenced by the key lead indicators
described previously.
For retail, sales performance continued to strengthen for supermarkets and food retailing while the department stores and apparel
categories have been disrupted by the changing retail dynamics including an increasing shift to online sales and increased competition
from international retailers at a time when consumer preferences are shifting in Australia, as cost and convenience of online delivery
improves. There may be some relief ahead as employment growth flows through to wages and retail spending growth benefits from
continued low interest rates. However, a softening housing market is likely to prevent spending growth from increasing too much.
The outlook for retail rents is subdued in the short to medium term, reflecting high occupancy costs and poor retail margins.
Retail sales growth across Dexus’s Funds Management portfolio was strongest at Regional centres which have recently undergone
redevelopment, leveraging the opportunity to enhance the centres’ offer to grow foot traffic and sales.
For healthcare, demand for healthcare services and consequently properties will continue to benefit from ageing demographics,
longer life expectancy and population growth.
Dexus will continue to satisfy the investment objectives of its Funds Management clients and funds through growing existing
funds via acquisitions and progressing the $2.0 billion Funds Management development pipeline, while maximising the performance.
iii) Trading
Dexus’s Trading business is an ongoing revenue stream, with the recognition of trading profits included in FFO. Dexus continues to
identify potential trading opportunities within its existing portfolio and seeks new trading opportunities for the future trading pipeline.
Dexus has de-risked FY19 trading profits of $35-40 million, net of tax, and is progressing its remaining pipeline projects.
FY19 Guidance
Dexus’s guidance1 for the 12 months ending 30 June 2019 is circa 5% growth in distribution per security.
1. Barring unforeseen circumstances, guidance is supported by the following assumptions: Impacts of announced divestments and acquisitions;
FFO per security growth of circa 3% and underlying FFO per security growth of circa 3% underpinned by Dexus office portfolio like-for-like growth
of 4-5%, Dexus industrial portfolio like-for-like income growth of 2.5-3.5%, management operations FFO and cost of debt in line with FY18; trading
profits of $35-40 million net of tax; maintenance capex, cash incentives, leasing costs and rent free incentives of $155-165 million; and excluding
any further transactions.
Dexus 2018 Annual ReportDirectors’ ReportOperating and Financial Reviewcontinued 51
Risks and megatrends
There are various risks and megatrends that could impact Dexus’s strategy and outlook, and the nature and potential impact of these
can change over time. Further information relating to Dexus’s risk management framework is detailed in the Corporate Governance
Statement available at www.dexus.com
Dexus actively reviews and manages the risks and megatrends facing its business over the short, medium and long-term, overseen by
the Board Risk Committee. The key risks and megatrends and how Dexus manages and monitors them are outlined in the tables below.
Key risk
Description
How Dexus is equipped to manage and monitor risks
Performance
Ability to meet market guidance,
deliver superior risk adjusted
performance relative to industry
benchmarks and complete
developments in line with
expectations.
Capital markets
Positioning the capital structure of the
business to withstand unexpected
changes in equity and debt markets.
Key client
Retention of existing wholesale
third party client or capital partner.
Compliance
& regulatory
Compliance with regulatory
requirements including continuous
disclosure, ASX Listing Rules, REIT
status and Dexus policies and
procedures.
Cyber/data &
governance risk
Management and maintenance
of data security.
Security &
emergency
management
Ensuring the safety of employees,
customers and the public at
Dexus sites.
Talent &
capability
Retention of key talent within Dexus.
Corporate culture Maintaining a respectful, open and
transparent culture which supports
diversity of opinion and values
including acting honestly, ethically
and with integrity.
Climate change
& environment
Mitigation against the impact
of climate change.
Building and
workplace health
& safety
Identify and remediate health and
safety issues relating to the fabric
of our buildings including facades.
Prevention of death or serious injury
at a Dexus owned or controlled site
due to unsafe work practices.
Processes are in place to regularly review progress against Dexus’s
strategy, with risk tolerances which are identified and managed.
Detailed due diligence is undertaken for all acquisitions and external
experts are appointed to assist in the design and costing process
for developments.
Prudent management of capital, including regular sensitivity analysis
and periodic independent reviews of hedging policy, assists in
protecting Dexus’s balance sheet from unexpected changes in capital
markets. Further information relating to financial risk management is
detailed in note 12 of the Financial Statements.
Dexus’s funds management model includes strong governance
principles and processes designed to build and strengthen relationships
with existing and new clients. A periodic client survey helps in identifying
key issues for action by the funds management team.
Dexus has systems and processes in place that address adherence to
compliance policies and regulatory requirements. Independent industry
experts are appointed to undertake reviews where appropriate.
Regular training, testing and disaster recovery activities, along with the
employment of data security software, assists in reducing the risk of a
breach of data security.
Procedures are in place to minimise threats to safety including the
adoption of plans relating to crisis management, business continuity
and emergency management. Responsiveness is regularly tested
through scenario planning exercises.
To assist in the retention of key talent, succession plans for key
employees are adopted and regularly reviewed. In addition, external
mapping is undertaken for key roles. Training and development of key
personnel assists with employee career progression within Dexus.
Having a diverse and inclusive culture is a focus of the Dexus Board
and the Group Management Committee. This is supported by regular
employee surveys and other reports that provide data on engagement
levels and organisational culture. There is continual monitoring of
lead and lag indicators to assist in identifying areas that may require
additional focus.
The impact of climate change is reduced through careful portfolio
construction combined with assessment of climate change risks and
associated adaptation planning. For new developments, long-term
environmental performance benchmarks are adopted in the design
and construction phase. For existing properties, Dexus manages
greenhouse gas (GHG) emission performance against a science-based
GHG emissions target.
Dexus adopts the following measures to ensure building and workplace
health and safety is maintained in and around its buildings:
- Engagement of external consultants for facade audits
- Ongoing monitoring and testing of existing sites
- Adoption of comprehensive work health and safety programs
and compliance by site contactors and employees
Independent certification against OHSAS 18001
Occupational Health and Safety Management Systems
Independent reviews by industry experts
-
-
Directors’ Report Directors’ Report
52
Operating and Financial Review
continued
Megatrends
Description
How Dexus is equipped to manage and monitor megatrends
Globalisation
The integration of capital, goods
and services across national borders
is driving increased connectivity
between countries and cities,
blending global cultures and business
practices. As a result, businesses
are seeking more flexibility in their
working environments.
Dexus is responding to the growing demand from customers who seek
workspaces that are flexible, collaborative and engaging through the
launch of various initiatives including:
- Dexus Place
- Expanded suite offerings
- Dexus simple and easy lease
- Smart buildings connected to leading technologies
Shifting
demographics
and societal
expectations
The ageing of the population, drift of
people to coastal urban areas and
increasing diversity in the workforce
is impacting the way people work.
Technological
change
Technology and connectivity is
driving mobility and collaboration
in workplaces. Artificial Intelligence,
automation and robotics is replacing
repetitive tasks, together with a new
focus on the value of big data and
analytics.
Urban density
The growth of cities is increasing
urban density in Australia’s major cities
creating challenges for social equity,
the environment, transport systems
and city planning.
Sustainability
As the world becomes more polluted
and urbanised, demand for energy,
food and water will rise, putting
pressure on supply of resources and
the wellbeing of people.
Dexus keeps abreast of the latest workspace trends and is responding to
increasing preferences for ‘plug and play’ or ‘work anywhere’ environments.
Dexus’s smart building blueprint provides technology solutions that
promote both connectivity across different spaces and flexibility in
workplace locations.
Wellplace caters for the growing wellbeing trend in the workplace,
providing a suite of health and wellbeing services and amenities.
For Dexus’s own workforce, the adoption of a flexible working policy
allows our employees to work anywhere, anytime, supporting personal
wellbeing and productivity.
Technological advancement brings opportunities to further support
our customers in their growth and productivity goals, and Dexus is
implementing innovative technologies in new developments to deliver a
better customer experience and optimise workforce productivity.
To support our employees, we are investing in systems and processes
that will define how we operate as a business and create a foundation
for operational excellence. This includes a new enterprise platform
designed to enhance the efficiency of our day to day operations and
reduce the operational demands on our people, enabling them to
spend more time and focus on our customers.
Dexus’s property portfolio is concentrated in the key CBDs of cities
around Australia where our customers want and need to be, a
circumstance that sees Dexus’s value and the future of our cities
closely interrelated.
Dexus is creating vibrant hubs with spaces that offer a sense of
community and high amenity which are well-connected through
technology and transport.
We are conscious of the impact of our operations on the environment
and we are embracing new technologies and new energy sources to
provide energy efficient workspaces.
Over the past decade, we have been focused on energy efficiency
as well as reducing the group’s greenhouse gas emissions and
environmental footprint.
As Australia continues its search for secure, affordable, and
environmentally conscious energy, Dexus has made progress on the
transition to a low carbon future. Our New energy, New opportunities
strategy sets a pathway for Dexus to achieve net zero emissions by
2030 through improving energy efficiency and increasing renewables.
Dexus 2018 Annual ReportDirectors’ ReportOperating and Financial Reviewcontinued Directors’ report
53
The Directors of Dexus Funds Management Limited (DXFM) as Responsible Entity of Dexus Diversified Trust (DDF or the Trust) present
their Directors’ Report together with the consolidated Financial Statements for the year ended 30 June 2018. The consolidated
Financial Statements represents DDF and its consolidated entities, Dexus (DXS or the Group).
The Trust together with Dexus Industrial Trust (DIT), Dexus Office Trust (DOT) and Dexus Operations Trust (DXO) form the Dexus
stapled security.
Directors and Secretaries
Directors
The following persons were Directors of DXFM at all times during the year and to the date of this Directors’ Report,
unless otherwise stated:
Directors
Appointed
Resigned
W Richard Sheppard, BEc (Hons), FAICD
1 January 2012
Elizabeth A Alexander, AM, BComm, FCA, FAICD, FCPA
1 January 2005
24 October 2017
Penny Bingham-Hall, BA (Industrial Design), FAICD, SF (Fin)
John C Conde, AO, BSc, BE (Hons), MBA, FAICD
Tonianne Dwyer, BJuris (Hons), LLB (Hons)
Mark Ford, Dip. Tech (Commerce), CA, FAICD
The Hon. Nicola L Roxon, BA/LLB (Hons), GAICD
Darren J Steinberg, BEc, FRICS, FAPI, FAICD
Peter B St George, CA(SA), MBA
10 June 2014
29 April 2009
24 August 2011
1 November 2016
1 September 2017
1 March 2012
29 April 2009
Company Secretaries
The names and details of the Company Secretaries of DXFM as at 30 June 2018 are as follows:
Brett D Cameron LLB/BA (Science and Technology), GAICD, FGIA
Appointed: 31 October 2014
Brett is the General Counsel and Company Secretary of Dexus companies and is responsible for the legal function, company
secretarial services and compliance, risk and governance systems and practices across the Group.
Prior to joining Dexus, Brett was Head of Legal for Macquarie Real Estate (Asia) and has held senior legal positions at Macquarie
Capital Funds in Hong Kong and Minter Ellison in Sydney and Hong Kong. Brett has 22 years’ experience as in-house counsel and in
private practice in Australia and in Asia, where he worked on real estate structuring and operations, funds management, mergers and
acquisitions, private equity and corporate finance across a number of industries.
Brett graduated from The University of New South Wales and holds a Bachelor of Laws and a Bachelor of Arts (Science and
Technology) and is a member of the Law Societies of New South Wales and Hong Kong. Brett is also a graduate of the Australian
Institute of Company Directors and a Fellow of the Governance Institute of Australia.
Rachel Caralis LLB/B Com (Acc), M Com (Property Development), Grad Dip (Applied Corporate Governance) AGIA, AAPI
Appointed: 17 February 2016
Rachel is Senior Legal Counsel and Company Secretary of Dexus.
Rachel joined Dexus in 2008 after five years at King and Wood Mallesons where she worked in the real estate and projects team.
Rachel has 15 years’ experience as in-house counsel and in private practice working on real estate and corporate transactions, funds
management and corporate finance for wholesale and listed clients.
Rachel graduated from the University of Canberra with a Bachelor of Laws and Bachelor of Commerce (Accounting), has completed
a Masters of Commerce (Property Development) at the University of Western Sydney and a Graduate Diploma in Applied Corporate
Governance at the Governance Institute of Australia. Rachel is a member of the Law Society of New South Wales, an associate of the
Australian Property Institute and an associate of the Governance Institute of Australia.
Directors’ Report 54
Attendance of Directors at Board Meetings and Board Committee Meetings
The number of Directors’ meetings held during the year and each Director’s attendance at those meetings is set out in the table
below. The Directors met 13 times during the year. Ten Board meetings were main meetings and three meetings were held to consider
specific business.
W Richard Sheppard
Elizabeth A Alexander, AM 1
Penny Bingham-Hall
John C Conde, AO
Tonianne Dwyer
Mark Ford
The Hon. Nicola L Roxon 2
Darren J Steinberg
Peter B St George
Main meetings
held
Main meetings
attended
Specific meetings
held
Specific meetings
attended
10
4
10
10
10
10
8
10
10
10
4
10
10
10
9
8
10
10
3
–
3
3
3
3
3
3
3
3
–
3
3
3
3
3
3
3
1. Ceased directorship 24 October 2017.
2. Commenced directorship on 1 September 2017.
Special meetings are held at a time to enable the maximum number of Directors to attend and are generally held to consider specific
items that cannot be held over to the next scheduled main meeting.
The table below shows Non-Executive Directors’ attendances at Board Committee meetings of which they were a member during the
year ended 30 June 2018.
Board Audit
Committee
Board Risk
Committee
Board Nomination
Committee
Board People
and Remuneration
Committee
Held
Attended
Held
Attended
Held
Attended
Held
Attended
–
1
–
3
4
–
4
4
–
1
–
3
4
–
4
4
–
–
4
–
4
3
4
4
–
–
4
–
4
3
4
4
4
–
4
4
–
–
–
–
4
–
4
4
–
–
–
–
5
–
5
1
–
4
–
–
5
–
5
1
–
4
–
–
W Richard Sheppard
Elizabeth A Alexander, AM 1
Penny Bingham-Hall
John C Conde, AO
Tonianne Dwyer
The Hon. Nicola L Roxon 2
Mark Ford
Peter B St George
1. Ceased directorship 24 October 2017.
2. Commenced directorship on 1 September 2017.
Elizabeth A Alexander and Tonianne Dwyer were also Directors of Dexus Wholesale Property Limited (DWPL) and attended DWPL
Board meetings during the year ended 30 June 2018. John Conde joined as a Director of Dexus Wholesale Property Limited (DWPL)
on 25 October 2017.
Dexus 2018 Annual ReportDirectors’ ReportDirectors’ reportcontinued 55
Remuneration Report
The Remuneration Report that forms part of this Directors’ Report is provided on pages 24-42 of this Annual Report.
Directors’ relevant interests
The relevant interests of each Director in DXS stapled securities as at the date of this Directors’ Report are shown below:
Directors
W Richard Sheppard
Penny Bingham-Hall
John C Conde, AO
Tonianne Dwyer
Mark Ford
The Hon. Nicola L Roxon
Darren J Steinberg 1
Peter B St George
No. of securities
70,090
16,534
16,667
16,667
1,667
Nil
1,219,571
17,333
1.
Includes interests held directly and through performance rights (refer note 22).
Operating and financial review
Information on the operations and financial position of the Group and its business strategies and prospects is set out in the operating
and financial review on pages 43-52 of this financial report.
Directors’ directorships in other listed entities
The following table sets out directorships of other ASX listed entities (unless otherwise stated), not including DXFM, held by the
Directors at any time in the three years immediately prior to the end of the year, and the period for which each directorship was held.
Director
W Richard Sheppard
Penny Bingham-Hall
John C Conde, AO
Tonianne Dwyer
Company
Star Entertainment Group
BlueScope Steel Limited
Fortescue Metals Group Ltd
Whitehaven Coal Limited
Cooper Energy Limited
Cardno Limited 1
Metcash Limited
ALS Limited
Oz Minerals Limited
The Hon. Nicola L Roxon
Lifestyle Communities Limited
Peter B St George
Mark Ford
First Quantum Minerals Limited 2
Kiwi Property Group Limited 3
1. Directorship ceased 27 January 2016.
2. Listed for trading on the Toronto Stock Exchange in Canada.
3. Listed for trading on the New Zealand Stock Exchange since 22 December 2014.
Date Appointed
21 November 2012
29 March 2011
16 November 2016
3 May 2007
25 February 2013
25 June 2012
24 June 2014
1 July 2016
21 March 2017
1 September 2017
20 October 2003
16 May 2011
Principal activities
During the year the principal activity of the Group was to own,
manage and develop high quality real estate assets and
manage real estate funds on behalf of third party investors.
There were no significant changes in the nature of the Group’s
activities during the year.
Likely developments and expected results of operations
In the opinion of the Directors, disclosure of any further
information regarding business strategies and future
developments or results of the Group, other than the information
already outlined in this Directors’ Report or the Financial
Statements accompanying this Directors’ Report would be
unreasonably prejudicial to the Group.
Total value of Trust assets
The total value of the assets of the Group as at 30 June 2018 was
$14,017.3 million (2017: $12,270.1 million). Details of the basis of this
valuation are outlined in the Notes to the Financial Statements
and form part of this Directors’ Report.
Significant changes in the state of affairs
The Directors are not aware of any matter or circumstance not
otherwise dealt with in this Directors’ Report or the Financial
Statements that has significantly or may significantly affect
the operations of the Group, the results of those operations,
or the state of the Group’s affairs in future financial years.
Directors’ Report 56
Matters subsequent to the end of the financial year
Since the end of the financial year the Directors are not aware
of any matter or circumstance not otherwise dealt with in
this Directors’ Report or the Financial Statements that has
significantly or may significantly affect the operations of the
Group, the results of those operations, or the state of the Group’s
affairs in future financial years.
Distributions
Distributions paid or payable by the Group for the year
ended 30 June 2018 were 47.8 cents per security (2017:
45.47 cents per security) as outlined in note 7 of the Notes
to the Financial Statements.
DXFM fees
Details of fees paid or payable by the Group to DXFM are
eliminated on consolidation for the year ended 30 June 2018.
Details are outlined in note 23 of the Notes to the Financial
Statements and form part of this Directors’ Report.
Interests in DXS securities
The movement in securities on issue in the Group during the year
and the number of securities on issue as at 30 June 2018 are
detailed in note 16 of the Notes to the Financial Statements and
form part of this Directors’ Report.
Details of the number of interests in the Group held by DXFM or
its associates as at the end of the financial year are outlined
in note 23 of the Notes to the Financial Statements and form part
of this Directors’ Report.
The DXFM Board has approved a grant of performance rights
of DXS stapled securities to eligible participants. Details of
the performance rights awarded during the financial year
are detailed in note 22. The Group did not have any options
on issue as at 30 June 2018 (2017: nil).
Environmental regulation
The Group’s senior management, through its Board Risk
Committee, oversees the policies, procedures and systems
that have been implemented to ensure the adequacy of its
environmental risk management practices. It is the opinion
of this Committee that adequate systems are in place for
the management of its environmental responsibilities and
compliance with its various licence requirements and regulations.
Further, the Committee is not aware of any material breaches
of these requirements.
Indemnification and insurance
The insurance premium for a policy of insurance indemnifying
Directors, officers and others (as defined in the relevant policy of
insurance) is paid by Dexus Holdings Pty Limited (DXH).
PricewaterhouseCoopers (PwC or the Auditor), is indemnified
out of the assets of the Group pursuant to the Dexus Specific
Terms of Business agreed for all engagements with PwC, to the
extent that the Group inappropriately uses or discloses a report
prepared by PwC. The Auditor, PwC, is not indemnified for the
provision of services where such an indemnification is prohibited
by the Corporations Act 2001.
Audit
Auditor
PricewaterhouseCoopers continues in office in accordance with
section 327 of the Corporations Act 2001.
Non-audit services
The Group may decide to employ the Auditor on assignments,
in addition to its statutory audit duties, where the Auditor’s
expertise and experience with the Group are important.
Details of the amounts paid or payable to the Auditor for audit
and non-audit services provided during the year are set out
in note 20 of the Notes to the Financial Statements.
The Board Audit Committee is satisfied that the provision of
non-audit services provided during the year by the Auditor (or
by another person or firm on the Auditor’s behalf) is compatible
with the standard of independence for auditors imposed by the
Corporations Act 2001.
The reasons for the Directors being satisfied are:
- All non-audit services have been reviewed by the Board Audit
Committee to ensure that they do not impact the impartiality
and objectivity of the auditor
- None of the services undermine the general principles relating
to auditor independence as set out in APES 110 Code of Ethics
for Professional Accountants.
The above Directors’ statements are in accordance with the
advice received from the Board Audit Committee.
Auditor’s Independence Declaration
A copy of the Auditor’s Independence Declaration as required
under section 307C of the Corporations Act 2001 is set out on
page 58 and forms part of this Directors’ Report.
Corporate governance
DXFM’s Corporate Governance Statement is available at:
www.dexus.com/corporategovernance
Rounding of amounts and currency
As the Group is an entity of the kind referred to in ASIC
Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191, the Directors have chosen to round amounts in this
Directors’ Report and the accompanying Financial Report to the
nearest tenth of a million dollars, unless otherwise indicated. The
Group is an entity to which the Instrument applies. All figures in
this Directors’ Report and the Financial Statements, except where
otherwise stated, are expressed in Australian dollars.
Directors’ authorisation
The Directors’ Report is made in accordance with a resolution of
the Directors. The Financial Statements were authorised for issue
by the Directors on 14 August 2018.
W Richard Sheppard
Chair
14 August 2018
Darren J Steinberg
Chief Executive Officer
14 August 2018
Dexus 2018 Annual ReportDirectors’ ReportDirectors’ reportcontinued
Auditor’s Independence Declaration
57
Directors’ Report 58
Financial Report
30 June 2018
Contents
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
About This Report
Notes to the Financial Statements
Group performance
Note 1 Operating segments
Note 2 Property revenue and expenses
Note 3
Management operations, corporate and
administration expenses
Note 4 Finance costs
Note 5 Taxation
Note 6 Earnings per unit
Note 7 Distributions paid and payable
Property portfolio assets
Note 8
Investment properties
Note 9
Investments accounted for using the equity
method
Note 10 Inventories
Note 11 Non-current assets classified as held for sale
Capital and financial risk management and working capital
Note 12 Capital and financial risk management
Note 13
Interest bearing liabilities
Note 14 Loans with related parties
Note 15 Commitments and contingencies
Note 16 Contributed equity
Note 17 Reserves
Note 18 Working capital
Other disclosures
Note 19
Intangible assets
Note 20 Audit, taxation and transaction service fees
Note 21 Cash flow information
Note 22 Security-based payment
Note 23 Related parties
Note 24 Parent entity disclosures
Note 25 Subsequent events
Directors’ Declaration
Independent Auditor’s Report
59
60
61
62
63
65
65
70
71
71
71
73
74
75
79
82
82
83
88
89
89
90
91
92
94
95
96
97
98
99
99
100
101
Dexus 2018 Annual ReportFinancial ReportFinancial Report Consolidated Statement of Comprehensive Income
For the year ended 30 June 2018
Note
2
10
9
2
10
4
3
5(a)
17
Revenue from ordinary activities
Property revenue
Development revenue
Interest revenue
Management fees and other revenue
Total revenue from ordinary activities
Net fair value gain of investment properties
Share of net profit of investments accounted for using the equity method
Net gain on sale of investment properties
Net fair value gain of interest bearing liabilities
Other income
Total income
Expenses
Property expenses
Development costs
Finance costs
Impairment of inventories
Net fair value loss of derivatives
Net loss on sale of investments
Transaction costs
Management operations, corporate and administration expenses
Total expenses
Profit/(loss) before tax
Income tax expense
Profit/(loss) for the year
Other comprehensive income/(loss):
Changes in the fair value of cash flow hedges
Total comprehensive income/(loss) for the year
Profit/(loss) for the year attributable to:
Unitholders of the parent entity
Unitholders of other stapled entities (non-controlling interests)
Profit/(loss) for the year
Total comprehensive income/(loss) for the year attributable to:
Unitholders of the parent entity
Unitholders of other stapled entities (non-controlling interests)
Total comprehensive income/(loss) for the year
59
2017
$m
540.6
224.3
0.6
116.2
881.7
457.6
470.4
23.4
87.5
–
2018
$m
577.2
133.1
0.7
129.6
840.6
854.2
535.8
1.7
85.8
0.5
2,318.6
1,920.6
(155.9)
(80.8)
(128.5)
(0.6)
(79.9)
(0.3)
(1.1)
(106.3)
(553.4)
1,765.2
(36.3)
1,728.9
(19.4)
1,709.5
468.8
1,260.1
1,728.9
449.4
1,260.1
1,709.5
(150.7)
(156.9)
(108.1)
–
(101.0)
–
–
(98.9)
(615.6)
1,305.0
(40.8)
1,264.2
(2.2)
1,262.0
217.4
1,046.8
1,264.2
215.2
1,046.8
1,262.0
Earnings per unit on profit/(loss) attributable to unitholders of the Trust (parent entity)
Basic earnings per unit
Diluted earnings per unit
Earnings per stapled security on profit/(loss) attributable to stapled security holders
Basic earnings per security
Diluted earnings per security
Cents
Cents
46.08
46.08
169.95
169.95
22.45
22.45
130.53
130.53
6
6
6
6
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
Financial Report 60
Current assets
Cash and cash equivalents
Receivables
Non-current assets classified as held for sale
Inventories
Derivative financial instruments
Other
Total current assets
Non-current assets
Investment properties
Plant and equipment
Inventories
Investments accounted for using the equity method
Derivative financial instruments
Intangible assets
Other
Total non-current assets
Total assets
Current liabilities
Payables
Current tax liabilities
Interest bearing liabilities
Loans with related parties
Provisions
Derivative financial instruments
Total current liabilities
Non-current liabilities
Interest bearing liabilities
Derivative financial instruments
Deferred tax liabilities
Provisions
Other
Total non-current liabilities
Total liabilities
Net assets
Equity
Equity attributable to unitholders of the Trust (parent entity)
Contributed equity
Reserves
Retained profits
Parent entity unitholders’ interest
Equity attributable to unitholders of other stapled entities
Contributed equity
Reserves
Retained profits
Other stapled unitholders’ interest
Total equity
Note
18(a)
18(b)
11
10
12(c)
18(c)
8
10
9
12(c)
19
18(d)
13
14
18(e)
12(c)
13
12(c)
5(d)
16
17
16
17
2018
$m
33.3
63.4
2.0
37.6
24.1
27.8
188.2
8,242.6
16.0
507.1
2017
$m
21.2
81.7
296.8
–
15.5
13.3
428.5
7,169.1
16.4
211.3
4,432.9
3,823.8
310.8
314.6
5.1
13,829.1
14,017.3
149.7
5.2
205.1
–
271.7
6.7
638.4
306.7
309.5
4.8
11,841.6
12,270.1
162.1
21.8
–
149.0
266.1
7.8
606.8
3,154.5
2,697.8
78.6
93.7
2.0
2.7
3,331.5
3,969.9
10,047.4
2,127.3
(12.5)
788.5
2,903.3
4,277.0
39.7
2,827.4
7,144.1
10,047.4
49.1
85.9
1.9
4.1
2,838.8
3,445.6
8,824.5
2,126.7
6.9
427.2
2,560.8
4,275.7
41.8
1,946.2
6,263.7
8,824.5
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
Dexus 2018 Annual ReportFinancial ReportFinancial ReportConsolidated Statement of Financial PositionAs at 30 June 2018 Consolidated Statement of Changes in Equity
For the year ended 30 June 2018
61
Attributable to unitholders of the Trust
(parent entity)
Attributable to unitholders of other
stapled entities
Contri-
buted
equity
$m
Note
Reserves
$m
Retained
profits
$m
Total
$m
Contri-
buted
equity
$m
Reserves
$m
Retained
profits
$m
Total
$m
Total
equity
$m
1,984.0
9.1
321.7
2,314.8
3,926.1
43.0
1,239.2
5,208.3
7,523.1
–
–
–
–
217.4
217.4
(2.2)
–
(2.2)
(2.2)
217.4
215.2
–
–
–
–
1,046.8
1,046.8
1,264.2
–
–
–
(2.2)
–
1,046.8
1,046.8
1,262.0
Opening balance as at
1 July 2016
Net profit/(loss) for
the year
Other comprehensive
income/(loss) for the year
Total comprehensive
income for the year
Transactions with owners in
their capacity as owners
Issue of additional
equity, net of
transaction costs
Purchase of securities,
net of transaction costs
Security-based
payments expense
Distributions paid
or provided for
Total transactions
with owners in their
capacity as owners
Closing balance as at
30 June 2017
Opening balance as at
1 July 2017
Net profit/(loss) for
the year
Other comprehensive
income/(loss) for the year
Total comprehensive
income for the year
Transactions with owners in
their capacity as owners
Issue of additional
equity, net of
transaction costs
Buy-back of
contributed equity
Purchase of securities,
net of transaction costs
Security-based
payments expense
Distributions paid or
provided for
Total transactions with
owners in their capacity
as owners
Closing balance as at
30 June 2018
7
16
16
7
–
–
–
–
–
–
1.1
(0.5)
–
–
–
16
142.7
142.7
349.6
–
–
–
–
–
–
–
–
–
–
(7.4)
6.2
–
–
–
–
–
–
349.6
492.3
(7.4)
(7.4)
6.2
6.2
(111.9)
(111.9)
–
(339.8)
(339.8)
(451.7)
142.7
–
(111.9)
30.8
349.6
(1.2)
(339.8)
8.6
39.4
2,126.7
6.9
427.2
2,560.8
4,275.7
41.8
1,946.2
6,263.7
8,824.5
2,126.7
6.9
427.2
2,560.8
4,275.7
41.8
1,946.2
6,263.7
8,824.5
–
468.8
468.8
(19.4)
–
(19.4)
(19.4)
468.8
449.4
–
–
–
–
1,260.1
1,260.1
1,728.9
–
–
–
(19.4)
–
1,260.1
1,260.1
1,709.5
–
–
–
–
–
–
–
–
1.1
2.7
(0.5)
(1.4)
–
–
–
–
–
–
–
(7.1)
5.0
–
–
–
–
2.7
3.8
(1.4)
(1.9)
(7.1)
(7.1)
5.0
5.0
–
(378.9)
(378.9)
(486.4)
–
(107.5)
(107.5)
0.6
–
(107.5)
(106.9)
1.3
(2.1)
(378.9)
(379.7)
(486.6)
2,127.3
(12.5)
788.5
2,903.3
4,277.0
39.7
2,827.4
7,144.1
10,047.4
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Financial Report 62
Consolidated Statement of Cash Flows
For the year ended 30 June 2018
Cash flows from operating activities
Receipts in the course of operations (inclusive of GST)
Payments in the course of operations (inclusive of GST)
Interest received
Finance costs paid to financial institutions
Distributions received from investments accounted for using the equity method
Income and withholding taxes paid
Proceeds from sale of property classified as inventory
Payments for property classified as inventory
Net cash inflow/(outflow) from operating activities
Cash flows from investing activities
Proceeds from sale of investment properties
Proceeds from sale of investments accounted for using the equity method
Payments for capital expenditure on investment properties
Payments for investments accounted for using the equity method
Payments for acquisition of investment properties
Payments for plant and equipment
Payments for intangibles
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Proceeds from loan with related party
Repayment of loan with related party
Payments for buy-back of contributed equity
Proceeds from issue of additional equity, net of transaction costs
Purchase of securities for security-based payments plans
Distributions paid to security holders
Net cash inflow/(outflow) from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Note
21
2018
$m
809.0
(351.7)
0.7
(137.5)
323.6
(44.0)
147.9
(138.3)
609.7
347.3
30.2
(192.8)
(429.3)
(369.3)
(3.1)
(11.0)
(628.0)
2,599.0
(1,931.6)
–
(149.0)
(1.9)
3.8
(7.1)
(482.8)
30.4
12.1
21.2
33.3
2017
$m
751.9
(298.9)
0.6
(129.9)
237.6
(53.1)
222.0
(73.1)
657.1
423.9
–
(139.1)
(69.8)
(187.0)
(3.0)
(7.1)
17.9
3,155.1
(4,052.7)
167.1
(18.1)
–
492.3
(7.4)
(408.2)
(671.9)
3.1
18.1
21.2
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
Dexus 2018 Annual ReportFinancial ReportFinancial Report About This Report
63
In this section
This section sets out the basis upon which the Group’s Financial Statements are prepared.
Specific accounting policies are described in their respective notes to the Financial Statements. This section also shows
information on new or amended accounting standards and their impact on the financial position and performance of the Group.
Basis of preparation
The financial statements are general purpose financial
reports which have been prepared in accordance with the
requirements of the Constitutions of the entities within the
Group, the Corporations Act 2001, AASB’s issued by the
Australian Accounting Standards Board and International
Financial Reporting Standards adopted by the International
Accounting Standard Board.
Unless otherwise stated the financial statements have been
prepared using consistent accounting policies in line with
those of the previous financial year and corresponding interim
reporting period.
The financial statements are presented in Australian dollars,
with all values rounded in the nearest tenth of a million dollars
in accordance with ASIC Corporations (Rounding in Financial/
Directors’ Reports) Instrument 2016/191, unless otherwise stated.
The financial statements have been prepared on a going
concern basis using historical cost conventions, except for
investment properties, investment properties within the equity
accounted investments, derivative financial instruments, and
other financial liabilities which are stated at their fair value.
Dexus stapled securities are quoted on the Australian Securities
Exchange under the “DXS” code and comprise one unit in
each of DDF, DIT, DOT and DXO. In accordance with Australian
Accounting Standards, the entities within the Group must
be consolidated for financial reporting purposes. DDF is the
parent entity and deemed acquirer of DIT, DOT and DXO. These
Financial Statements therefore represent the consolidated
results of DDF and include DDF and its controlled entities, DIT
and its controlled entities, DOT and its controlled entities, and
DXO and its controlled entities. All entities within the Group are
for profit entities.
Equity attributable to other trusts stapled to DDF is a form of
non-controlling interest and represents the equity of DIT, DOT
and DXO. The amount of non-controlling interest attributable to
stapled security holders is disclosed in the Statement of Financial
Position. DDF is a for-profit entity for the purpose of preparing
Financial Statements.
Each entity forming part of the Group continues as a separate
legal entity in its own right under the Corporations Act 2001 and
is therefore required to comply with the reporting and disclosure
requirements under the Corporations Act 2001 and Australian
Accounting Standards. Dexus Funds Management Limited
(DXFM) as Responsible Entity for DDF, DIT, DOT and DXO may
only unstaple the Group if approval is obtained by a special
resolution of the stapled security holders.
Working capital deficiency
The Group has unutilised facilities of $886.6 million (2017:
$1,060.5 million) (refer to note 13) and sufficient working capital
and cash flows in order to fund all requirements arising from the
net current asset deficiency as at 30 June 2018 of $450.2 million
(2017: $178.3 million). The deficiency is largely driven by the
provision for distribution due to be paid in August 2018 and
pending expiry of medium term notes.
Critical accounting estimates
In the process of applying the Group’s accounting policies,
management has made a number of judgements and applied
estimates of future events. Judgements and estimates which
are material to the financial report are discussed in the
following notes:
Note 8
Investment properties
Note 10
Inventories
Note 12(b)
Interest bearing liabilities
Note 12(c) Derivative financial instruments
Note 19
Intangible assets
Note 22
Security-based payment
Page 75
Page 82
Page 84
Page 87
Page 94
Page 97
Principles of consolidation
These consolidated Financial Statements incorporate the assets,
liabilities and results of all subsidiaries as at 30 June 2018.
a) Controlled entities
Subsidiaries are all entities over which the Group has control. The
Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power to direct
the activities of the entity. Subsidiaries are fully consolidated
from the date on which control is transferred to the Group. They
are deconsolidated from the date that control ceases.
b) Joint arrangements
Investments in joint arrangements are classified as either joint
operations or joint ventures depending on the contractual rights
and obligations each investor has, rather than the legal structure
of the joint arrangement.
Joint operations
Where assets are held directly as tenants in common, the
Group’s proportionate share of revenues, expenses, assets and
liabilities are included in their respective items of the Statement
of Financial Position and Statement of Comprehensive Income.
Joint ventures
Investments in joint ventures are accounted for using the equity
method. Under this method, the Group’s share of the joint
ventures’ post-acquisition profits or losses is recognised in the
Statement of Comprehensive Income and distributions received
from joint ventures are recognised as a reduction of the carrying
amount of the investment.
c) Employee share trust
The Group has formed a trust to administer the Group’s
security-based employee benefits. The employee share trust
is consolidated as the substance of the relationship is that the
trust is controlled by the Group.
Foreign currency
The Financial Statements are presented in Australian dollars.
Foreign currency transactions are translated into the Australian
dollars functional currency using the exchange rates prevailing
at the dates of the transactions. Foreign exchange gains and
losses resulting from the settlement of such transactions and
from the translation at period end exchange rates of financial
assets and liabilities denominated in foreign currencies are
recognised in the Statement of Comprehensive Income.
As at 30 June 2018, the Group had no investments in
foreign operations.
Goods and services tax
Revenues, expenses and capital assets are recognised net of
any amount of Australian Goods and Services Tax (GST), except
where the amount of GST incurred is not recoverable. In these
circumstances the GST is recognised as part of the cost of
acquisition of the asset or as part of the expense. Cash flows are
included in the Statement of Cash Flows on a gross basis. The
GST component of cash flows arising from investing and financing
activities that is recoverable from or payable to the Australian
Taxation Office is classified as cash flows from operating activities.
Financial Report 64
New accounting standards and interpretations
Certain new accounting standards and interpretations have
been published that are not mandatory for the 30 June 2018
reporting period. The Group’s assessment of the impact of these
new standards and interpretations is set out below:
AASB 9 Financial Instruments (effective application for the
Group is 1 July 2018).
AASB 9 addresses the classification, measurement and de-
recognition of financial assets and financial liabilities and introduces
new rules for hedge accounting and impairment of financial assets.
The following areas have specifically been considered.
Impairment of financial assets – The current impairment
assessment model is an ‘incurred loss’ model requiring the Group
to consider whether or not the financial asset is impaired at the
date of performing the assessment. Under AASB 9 this model has
changed to an ‘expected credit loss’ model. Under this model,
the Group is required to consider the historical actual write off
rates for a type of financial asset, and forward looking indicators
that might impact the recoverability of similar financial assets
currently recognised. Management is currently working through
the model to quantify the impact but does not expect a material
impact on the provision for doubtful debts.
Hedging – The new hedging rules align hedge accounting more
closely with the reporting entity’s risk management practices.
AASB 9 requires updated hedge documentation to reflect
the new requirements of AASB 9. Existing hedge relationships
will continue to qualify as effective hedge relationships upon
adoption of the new standard. The Group uses interest rate
swaps and cross currency interest rate swaps to manage interest
rate and foreign currency risk exposures arising from external
debt obligations. Applying AASB 9 hedge accounting, changes
in foreign currency basis spreads will be recognised in a separate
cost of hedging reserve within equity.
Debt modifications – The amendment to AASB 9 clarified that
gain or loss arising on modification of a financial liability that
does not result in derecognition is immediately recognised
in profit or loss. Management is currently working through to
quantify the impact but does not expect a material impact
as a result of the amendments.
The Group intends to adopt the new standard from 1 July 2018
and will not restate comparative information.
AASB 15 Revenue from Contracts with Customers (effective
application for the Group is 1 July 2018).
AASB 15 provides new guidance for determining when the Group
should recognise revenue. The new revenue recognition model is
based on the principle that revenue is recognised when control
of a good or service is transferred to a customer – either at a
point in time or over time. The model features a contract–based
five-step analysis of transactions to determine whether, how
much and when revenue is recognised. The Group’s revenue is
largely comprised of income under leases (see below), sales of
inventory, management fees and development services.
Management has substantially completed its assessment of the
impact of transition to the new standard and does not expect
there to be an impact on the recognition and measurement of
revenue although additional disclosures will be required.
The following specific revenue streams have been assessed:
Income under leases – Within its lease arrangements, the Group
provides certain services to tenants (such as utilities, cleaning,
maintenance and certain parking arrangements) which will be
accounted for within AASB 15. A portion of the consideration
within the lease arrangement will be allocated to revenue for
the provision of services. The service revenue will be recognised
over time as the services are provided and as such, the timing of
recognition of income is not expected to change. Such revenue
will, however, be disclosed separately.
Investment management and property management fees –
Where the Group earns investment and property management
fees, the fees will continue to be recognised monthly over the
duration of the agreements. Management is still assessing any
impact of the new guidance on property management contracts
and whether these should be presented on a gross or net basis.
Sales of inventory and development services – AASB 15 provides
an expedient whereby contracts that are completed as of the
date of transition (1 July 2018) are not required to be re-assessed.
Management expects to apply this expedient. There is no impact
on existing sales of inventory and development services as the
Group has no uncompleted inventory or development contracts
at 1 July 2018 which require re-assessment. All sales of inventory
and development service contracts entered into post 1 July 2018
will be evaluated in accordance with the new model which will
require management to assess: 1) whether there are multiple
performance obligations in the contract and if so, whether the
consideration is allocated based on relative stand-alone selling
price; 2) whether the Group’s obligations are satisfied at a point
in time or over time and 3) the appropriate timing and pattern
of recognition.
The Group will adopt the new standard from 1 July 2018 using the
modified retrospective approach whereby comparatives for the
year ended 30 June 2018 will not be restated.
AASB 16 Leases (effective application for the Group is 1 July 2019).
AASB 16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases. In 2018, revenue
recognised from leases was approximately $585.4 million (2017:
$533.2 million). The accounting for this lease income is not
expected to change with the adoption of the new standard
other than the separation of service income from lease income
for disclosure purposes as a result of the application of AASB 15
described above.
With respect to leases where the Group is lessee, all leases,
including ground lease, will be required to be recognised on
balance sheet with the exception of short-term or low-value
leases. An asset (the right to use the leased item) and a financial
liability to pay rentals will be recognised with associated
depreciation expense and finance cost. This differs to the current
operating lease treatment where lease payments are recognised
on a straight-line basis over the lease term.
The Group intends to apply the standard from 1 July 2019.
Dexus 2018 Annual ReportFinancial ReportFinancial ReportAbout This Reportcontinued Notes to the Financial Statements
65
Group Performance
The notes include information which is required to understand the Financial Statements and is material and relevant to the
operations, financial position and performance of the Group.
The notes are organised into the following sections:
Group performance
Property portfolio assets
Capital and financial risk
management and working capital Other disclosures
1. Operating segments
2.
Property revenue and
expenses
Management operations,
corporate and
administration expenses
Finance costs
Taxation
Earnings per unit
Distributions paid
and payable
3.
4.
5.
6.
7.
8.
9.
Investment properties
Investments accounted for
using the equity method
10. Inventories
11.
Non-current assets
classified as held for sale
12. Capital and financial
risk management
13. Interest bearing liabilities
14. Loans with related parties
15. Commitments and
contingencies
16. Contributed equity
17. Reserves
18. Working capital
19. Intangible assets
20. Audit, taxation and
transaction service fees
21. Cash flow information
22. Security-based payment
23. Related parties
24. Parent entity disclosures
25. Subsequent events
In this section
This section explains the results and performance of the Group.
It provides additional information about those individual line items in the Financial Statements that the Directors consider most
relevant in the context of the operations of the Group, including: results by operating segment, property revenue and expenses,
management operations, corporate and administration expenses, finance costs, taxation, earnings per unit and distributions
paid and payable.
Note 1 Operating segments
Description of segments
The Group’s operating segments have been identified based on the sectors analysed within the management reports reviewed
in order to monitor performance across the Group and to appropriately allocate resources. Refer to the table below for a brief
description of the Group’s operating segments.
Segment
Office
Industrial
Description
Domestic office space with any associated retail space; as well as car parks and office developments.
Domestic industrial properties, industrial estates and industrial developments.
Property management
Property management services for third party clients and owned assets.
Funds management
Funds management of third party client assets.
Development and trading
Revenue earned and costs incurred by the Group on development services for third party clients
and inventory.
All other segments
Corporate expenses associated with maintaining and operating the Group. This segment also
includes the centralised treasury function and direct property portfolio value of the Group’s
healthcare investments.
Financial Report 66
Group Performance continued
Note 1 Operating segments continued
30 June 2018
Segment performance measures
Property revenue
Property management fees
Development revenue
Management fee revenue
Total operating segment revenue
Property expenses & property management salaries
Management operations expenses
Corporate and administration expenses
Development costs
Interest revenue
Finance costs
Incentive amortisation and rent straight-line
FFO tax expense
Rental guarantees, coupon income and other
Funds From Operations (FFO)
Net fair value gain/(loss) of investment properties
Amortisation of intangible assets
Impairment of inventories
Net fair value gain/(loss) of derivatives
Transaction costs
Net gain/(loss) on sale of investment properties
Net fair value gain/(loss) of interest bearing liabilities
Incentive amortisation and rent straight-line
Non FFO deferred tax expense
Rental guarantees, coupon income and other
Net profit/(loss) attributable to stapled security holders
Investment properties
Non-current assets held for sale
Inventories
Equity accounted investment properties
Direct property portfolio
Office
$m
Industrial
$m
712.3
152.0
Property
management
$m
Funds
management
$m
Development
and trading
$m
All other
segments
$m
Eliminations
$m
–
–
–
712.3
(195.3)
–
(12.8)
–
–
–
87.1
–
12.5
603.8
1,054.0
–
–
–
–
(0.9)
–
(87.1)
–
(15.0)
1,554.8
6,437.2
–
–
4,327.0
10,764.2
–
–
–
152.0
(30.4)
–
(3.2)
–
–
–
14.3
–
–
132.7
141.9
–
(0.6)
–
–
–
–
(14.3)
–
–
259.7
1,805.4
2.0
–
167.2
1,974.6
16.1
35.9
–
29.2
–
38.8
68.0
(19.5)
(32.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
58.0
58.0
–
(22.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
133.1
5.0
138.1
–
(4.5)
–
(80.8)
–
–
–
(15.7)
–
37.1
–
–
–
–
–
–
–
–
–
–
–
–
–
544.7
544.7
–
–
–
–
–
–
–
(27.4)
–
1.4
(135.8)
–
(13.3)
2.8
(172.3)
5.9
(5.5)
–
(77.5)
(1.1)
–
85.8
–
(7.3)
(2.7)
–
–
–
54.1
54.1
16.1
35.9
37.1
(174.7)
Total
$m
861.5
29.2
133.1
101.8
1,125.6
(245.2)
(59.0)
(40.6)
(80.8)
1.4
(135.8)
101.4
(29.0)
15.3
653.3
1,201.8
(5.5)
(0.6)
(77.5)
(1.1)
(0.9)
85.8
(101.4)
(7.3)
(17.7)
1,728.9
8,242.6
2.0
544.7
4,548.3
13,337.6
(2.8)
(2.8)
2.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Dexus 2018 Annual ReportFinancial ReportFinancial ReportNotes to the Financial Statementscontinued Group Performance continued
Note 1 Operating segments continued
30 June 2018
Segment performance measures
Property revenue
Property management fees
Development revenue
Management fee revenue
Total operating segment revenue
Property expenses & property management salaries
Management operations expenses
Corporate and administration expenses
Development costs
Interest revenue
Finance costs
FFO tax expense
Incentive amortisation and rent straight-line
Rental guarantees, coupon income and other
Funds From Operations (FFO)
Net fair value gain/(loss) of investment properties
Amortisation of intangible assets
Impairment of inventories
Net fair value gain/(loss) of derivatives
Transaction costs
Net gain/(loss) on sale of investment properties
Net fair value gain/(loss) of interest bearing liabilities
Incentive amortisation and rent straight-line
Non FFO deferred tax expense
Rental guarantees, coupon income and other
Net profit/(loss) attributable to stapled security holders
Investment properties
Non-current assets held for sale
Inventories
Equity accounted investment properties
Direct property portfolio
Office
$m
Industrial
$m
712.3
152.0
712.3
(195.3)
(12.8)
–
–
–
–
–
–
–
87.1
–
12.5
603.8
1,054.0
–
–
–
–
(0.9)
–
(87.1)
–
(15.0)
1,554.8
6,437.2
–
–
4,327.0
10,764.2
–
–
–
152.0
(30.4)
–
(3.2)
–
–
–
–
–
14.3
132.7
141.9
–
(0.6)
–
–
–
–
–
–
(14.3)
259.7
1,805.4
2.0
–
167.2
1,974.6
Property
management
$m
Funds
management
$m
Development
and trading
$m
All other
segments
$m
Eliminations
$m
–
29.2
–
38.8
68.0
(19.5)
(32.4)
–
–
–
–
–
–
–
–
–
–
58.0
58.0
–
(22.1)
–
–
–
–
–
–
–
16.1
35.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16.1
35.9
–
–
–
–
–
–
–
–
–
–
–
–
133.1
5.0
138.1
–
(4.5)
–
(80.8)
–
–
–
(15.7)
–
37.1
–
–
–
–
–
–
–
–
–
–
37.1
–
–
544.7
–
544.7
–
–
–
–
–
–
–
(27.4)
–
1.4
(135.8)
–
(13.3)
2.8
(172.3)
5.9
(5.5)
–
(77.5)
(1.1)
–
85.8
–
(7.3)
(2.7)
(174.7)
–
–
–
54.1
54.1
(2.8)
–
–
–
(2.8)
–
–
2.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
67
Total
$m
861.5
29.2
133.1
101.8
1,125.6
(245.2)
(59.0)
(40.6)
(80.8)
1.4
(135.8)
101.4
(29.0)
15.3
653.3
1,201.8
(5.5)
(0.6)
(77.5)
(1.1)
(0.9)
85.8
(101.4)
(7.3)
(17.7)
1,728.9
8,242.6
2.0
544.7
4,548.3
13,337.6
Financial Report 68
Group Performance continued
Note 1 Operating segments continued
30 June 2017
Segment performance measures
Property revenue
Property management fees
Development revenue
Management fee revenue
Total operating segment revenue
Property expenses & property management salaries
Management operations expenses
Corporate and administration expenses
Development costs
Interest revenue
Finance costs
Incentive amortisation and rent straight-line
FFO tax expense
Rental guarantee and other
Funds From Operations (FFO)
Net fair value gain/(loss) of investment properties
Net fair value gain/(loss) of derivatives
Net gain/(loss) on sale of investment properties
Net fair value gain/(loss) of interest bearing liabilities
Incentive amortisation and rent straight-line
Amortisation of intangible assets
Non FFO deferred tax expense
Rental guarantee and other
Net profit/(loss) attributable to stapled security holders
Investment properties
Non-current assets held for sale
Inventories
Equity accounted investment properties
Direct property portfolio
Office
$m
Industrial
$m
639.4
137.6
Property
management
$m
Funds
management
$m
Development
and trading
$m
All other
segments
$m
Eliminations
$m
–
–
–
639.4
(161.5)
–
(12.5)
–
–
–
91.3
–
10.7
567.4
625.8
–
70.7
–
(91.3)
–
–
(12.7)
1,159.9
5,539.8
283.7
–
3,653.7
9,477.2
–
–
–
137.6
(28.5)
–
(3.1)
–
–
–
8.8
–
–
114.8
78.9
–
–
–
(8.8)
–
–
–
184.9
1,629.3
13.1
–
131.7
1,774.1
–
24.9
–
36.2
61.1
(17.8)
(30.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
52.7
52.7
–
(20.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
224.3
6.7
231.0
–
(5.9)
–
(156.9)
(20.2)
48.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
211.3
211.3
–
–
–
–
–
–
–
(23.7)
–
1.1
(123.0)
–
(12.6)
0.2
(158.0)
–
(91.1)
–
87.5
–
(4.5)
(8.0)
–
(174.1)
–
–
–
–
–
12.9
32.6
12.9
32.6
48.0
Total
$m
774.4
24.9
224.3
95.6
1,119.2
(207.8)
(56.4)
(36.7)
(156.9)
1.1
(123.0)
100.1
(32.8)
10.9
617.7
704.7
(91.1)
70.7
87.5
(100.1)
(4.5)
(8.0)
(12.7)
1,264.2
7,169.1
296.8
211.3
3,785.4
11,462.6
(2.6)
(2.6)
2.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Dexus 2018 Annual ReportFinancial ReportFinancial ReportNotes to the Financial Statementscontinued Group Performance continued
Note 1 Operating segments continued
30 June 2017
Segment performance measures
Property revenue
Property management fees
Development revenue
Management fee revenue
Total operating segment revenue
Property expenses & property management salaries
Management operations expenses
Corporate and administration expenses
Development costs
Interest revenue
Finance costs
Incentive amortisation and rent straight-line
FFO tax expense
Rental guarantee and other
Funds From Operations (FFO)
Net fair value gain/(loss) of investment properties
Net fair value gain/(loss) of derivatives
Net gain/(loss) on sale of investment properties
Net fair value gain/(loss) of interest bearing liabilities
Incentive amortisation and rent straight-line
Amortisation of intangible assets
Non FFO deferred tax expense
Rental guarantee and other
Investment properties
Non-current assets held for sale
Inventories
Equity accounted investment properties
Direct property portfolio
Office
$m
Industrial
$m
639.4
137.6
639.4
(161.5)
(12.5)
–
–
–
–
–
–
–
91.3
–
10.7
567.4
625.8
–
70.7
–
(91.3)
–
–
(12.7)
1,159.9
5,539.8
283.7
–
3,653.7
9,477.2
–
–
–
137.6
(28.5)
–
(3.1)
–
–
–
–
–
8.8
114.8
78.9
(8.8)
–
–
–
–
–
–
184.9
1,629.3
13.1
–
131.7
1,774.1
Property
management
$m
Funds
management
$m
Development
and trading
$m
All other
segments
$m
Eliminations
$m
–
24.9
–
36.2
61.1
(17.8)
(30.4)
–
–
–
–
–
–
–
–
–
–
52.7
52.7
–
(20.1)
–
–
–
–
–
–
–
12.9
32.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Net profit/(loss) attributable to stapled security holders
12.9
32.6
–
–
–
–
–
–
–
–
–
–
–
–
224.3
6.7
231.0
–
(5.9)
–
(156.9)
–
–
–
(20.2)
–
48.0
–
–
–
–
–
–
–
–
48.0
–
–
211.3
–
211.3
–
–
–
–
–
–
–
(23.7)
–
1.1
(123.0)
–
(12.6)
0.2
(158.0)
–
(91.1)
–
87.5
–
(4.5)
(8.0)
–
(174.1)
–
–
–
–
–
(2.6)
–
–
–
(2.6)
–
–
2.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
69
Total
$m
774.4
24.9
224.3
95.6
1,119.2
(207.8)
(56.4)
(36.7)
(156.9)
1.1
(123.0)
100.1
(32.8)
10.9
617.7
704.7
(91.1)
70.7
87.5
(100.1)
(4.5)
(8.0)
(12.7)
1,264.2
7,169.1
296.8
211.3
3,785.4
11,462.6
Financial Report 70
Group Performance continued
Note 1 Operating segments continued
Other segment information
Funds from Operations (FFO)
The Directors consider the Property Council of Australia’s (PCA) definition of FFO to be a measure that reflects the underlying
performance of the Group. FFO comprises net profit/loss after tax attributable to stapled security holders, calculated in
accordance with Australian Accounting Standards and adjusted for: property revaluations, impairments, derivative and foreign
exchange mark-to-market impacts, fair value movements of interest bearing liabilities, amortisation of tenant incentives, gain/loss
on sale of certain assets, straight line rent adjustments, deferred tax expense/benefit, transaction costs, amortisation of intangible
assets, rental guarantees and coupon income.
Reconciliation of segment revenue to the Statement of Comprehensive Income
Gross operating segment revenue
Share of property revenue from joint ventures
Share of management fees charged to joint ventures
Interest revenue
Total revenue from ordinary activities
Reconciliation of segment assets to the Statement of Financial Position
Direct property portfolio 1
Cash and cash equivalents
Receivables
Intangible assets
Derivative financial instruments
Plant and equipment
Prepayments and other assets 2
Total assets
2018
$m
1,125.6
(313.5)
27.8
0.7
840.6
2017
$m
1,119.2
(258.6)
20.5
0.6
881.7
2018
$m
2017
$m
13,337.6
11,462.6
33.3
63.4
314.6
334.9
16.0
(82.5)
21.2
81.7
309.5
322.2
16.4
56.5
14,017.3
12,270.1
Includes the Group’s portion of investment properties accounted for using the equity method.
1.
2. Other assets include the Group’s share of total net assets of its investments accounted for using the equity method less the Group’s share of the
investment property value which is included in the direct property portfolio.
Note 2 Property revenue and expenses
The Group’s main revenue stream is property rental revenue and is derived from holding properties as investment properties and
earning rental yields over time. Rental revenue is recognised on a straight-line basis over the lease term for leases with fixed rent
review clauses.
Prospective tenants may be offered incentives as an inducement to enter into operating leases. The costs of incentives are
recognised as a reduction of rental revenue on a straight-line basis from the lease commencement date to the end of the lease term.
The carrying amount of the lease incentives is reflected in the fair value of investment properties.
Property, development and fund management fee revenue is recognised as the service is delivered, in accordance with the terms of
the relevant contracts.
Rent and recoverable outgoings
Incentive amortisation
Other revenue
Total property revenue
2018
$m
585.4
(80.7)
72.5
577.2
2017
$m
533.2
(73.9)
81.3
540.6
Property expenses of $155.9 million (2017: $150.7 million) includes rates, taxes and other property outgoings incurred in relation to
investment properties.
Dexus 2018 Annual ReportFinancial ReportFinancial ReportNotes to the Financial Statementscontinued Note 3 Management operations, corporate and administration expenses
Audit, taxation, legal and other professional fees
Depreciation and amortisation
Employee benefits expense and other staff expenses
Administration and other expenses
Total management operations, corporate and administration expenses
71
2017
$m
5.8
7.8
72.9
12.4
98.9
2018
$m
5.3
9.2
78.0
13.8
106.3
Note 4 Finance costs
Borrowing costs include interest, amortisation or other costs incurred in connection with arrangement of borrowings and net fair value
movements of interest rate swaps. Borrowing costs are expensed as incurred unless they relate to qualifying assets.
A qualifying asset is an asset under development which takes a substantial period of time, where the works being carried out to bring
it to its intended use or sale are expected to exceed 12 months in duration. Finance costs incurred for the acquisition and construction
of a qualifying asset are capitalised to the cost of the asset for the period of time that is required to complete the asset. To the extent
that funds are borrowed generally to fund development, the amount of borrowing costs to be capitalised to qualifying assets must
be determined by using an appropriate capitalisation rate.
Interest paid/payable
Net fair value (gain)/loss of interest rate swaps
Amount capitalised
Other finance costs
Total finance costs
2018
$m
122.4
12.9
(13.1)
6.3
128.5
2017
$m
114.0
(0.8)
(9.8)
4.7
108.1
The average capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is 5.75% (2017: 6.25%).
Note 5 Taxation
Under current Australian income tax legislation, DDF, DIT and DOT are not liable for income tax provided they satisfy certain
legislative requirements, which were met in the current and previous financial years. DXO is liable for income tax and has formed
a tax consolidated group with its wholly owned and controlled Australian entities. As a consequence, these entities are taxed
as a single entity.
Income tax expense is comprised of current and deferred tax expense. Current and deferred tax is recognised in profit or loss, except
to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case it is recognised in
other comprehensive income or directly in equity, respectively.
Current tax expense represents the expense relating to the expected taxable income at the applicable rate of the financial year.
Deferred tax expense represents the tax expense in respect of the future tax consequences of recovering or settling the carrying
amount of an asset or liability. Deferred income tax liabilities are recognised for all taxable temporary differences. Deferred income
tax assets are recognised for all deductible temporary differences and unused tax losses, to the extent that it is probable that future
taxable profit will be available to utilise them.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is
realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance
sheet date.
The carrying amount of deferred income tax assets is reviewed at balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to utilise them.
Attribution managed investment trust regime
Dexus has made an election for DDF, DOT and DIT to be attribution managed investment trusts (AMITs) for the year ended 30 June
2017 and future years. The AMIT regime is intended to reduce complexity, increase certainty and minimise compliance costs for AMITs
and their investors.
Financial Report 72
Group Performance continued
Note 5 Taxation continued
a) Income tax (expense)/benefit
Current income tax (expense)/benefit
Deferred income tax (expense)/benefit
Total income tax expense
Deferred income tax expense included in income tax (expense)/benefit comprises:
(Decrease)/increase in deferred tax assets
(Increase)/decrease in deferred tax liabilities
Total deferred tax expense
b) Reconciliation of income tax (expense)/benefit to net profit
Profit before income tax
Less: profit attributed to entities not subject to tax
Profit subject to income tax
Prima facie tax expense at the Australian tax rate of 30% (2017: 30%)
Tax effect of amounts which are not deductible/(taxable) in calculating taxable income:
(Non-assessable)/non-deductible items
Income tax expense
c) Deferred tax assets
The balance comprises temporary differences attributable to:
Employee provisions
Other
Total non-current assets – deferred tax assets
Movements:
Opening balance at the beginning of the year
Movement in deferred tax asset arising from temporary differences
(Charged)/credited to the Statement of Comprehensive Income
Closing balance at the end of the year
2018
$m
(28.5)
(7.8)
(36.3)
2.2
(10.0)
(7.8)
2018
$m
1,765.2
(1,628.3)
136.9
(41.1)
4.8
(36.3)
2018
$m
13.6
1.9
15.5
13.3
2.2
2.2
15.5
2017
$m
(34.6)
(6.2)
(40.8)
1.8
(8.0)
(6.2)
2017
$m
1,305.0
(1,171.9)
133.1
(39.9)
(0.9)
(40.8)
2017
$m
11.4
1.9
13.3
11.5
1.8
1.8
13.3
Dexus 2018 Annual ReportFinancial ReportFinancial ReportNotes to the Financial Statementscontinued d) Deferred tax liabilities
The balance comprises temporary differences attributable to:
Intangible assets
Investment properties
Other
Total non-current liabilities – deferred tax liabilities
Movements
Opening balance at the beginning of the year
Movement in deferred tax liability arising from temporary differences
Charged/(credited) to the Statement of Comprehensive Income
Closing balance at the end of the year
Net deferred tax liabilities
Deferred tax assets
Deferred tax liabilities
Net deferred tax liabilities
73
2017
$m
74.9
20.9
3.4
99.2
91.2
8.0
8.0
99.2
2017
$m
13.3
99.2
85.9
2018
$m
74.8
34.2
0.2
109.2
99.2
10.0
10.0
109.2
2018
$m
15.5
109.2
93.7
Note 6 Earnings per unit
Earnings per unit are determined by dividing the net profit attributable to unitholders by the weighted average number of ordinary
units outstanding during the year. Diluted earnings per unit are adjusted from the basic earnings per unit by taking into account the
impact of dilutive potential units.
a) Net profit used in calculating basic and diluted earnings per security
Profit attributable to unitholders of the Trust (parent entity)
Profit attributable to stapled security holders
b) Weighted average number of securities used as a denominator
Weighted average number of securities outstanding used in calculation of basic
and diluted earnings per security
2018
$m
468.8
1,728.9
2017
$m
217.4
1,264.2
2018
No. of
securities
2017
No. of
securities
1,017,299,246
968,484,893
Financial Report 74
Group Performance continued
Note 7 Distributions paid and payable
Distributions are recognised when declared.
a) Distribution to security holders
31 December (paid 28 February 2018)
30 June (payable 30 August 2018)
Total distribution to security holders
b) Distribution rate
31 December (paid 28 February 2018)
30 June (payable 30 August 2018)
Total distributions
c) Franked dividends
Opening balance at the beginning of the year
Income tax paid during the year
Franking credits utilised for payment of distribution
Closing balance at the end of the year
2018
$m
241.1
245.3
486.4
2017
$m
210.1
241.6
451.7
2018
Cents per
security
2017
Cents per
security
23.7
24.1
47.8
2018
$m
33.4
45.0
(21.4)
57.0
21.7
23.8
45.5
2017
$m
2.0
52.8
(21.4)
33.4
As at 30 June 2018, the Group had a current tax liability of $5.2 million, which will be added to the franking account balance once
payment is made.
Dexus 2018 Annual ReportFinancial ReportFinancial ReportNotes to the Financial Statementscontinued 75
Property portfolio assets
In this section
The following table summarises the property portfolio assets detailed in this section.
30 June 2018
Investment properties
Equity accounted investments
Inventories
Assets held for sale
Total
Note
8
9
10
11
Office
$m
6,437.2
4,327.0
274.2
–
Industrial
$m
Healthcare
$m
1,805.4
167.2
270.5
2.0
–
54.1
–
–
Total
$m
8,242.6
4,548.3
544.7
2.0
11,038.4
2,245.1
54.1
13,337.6
Property portfolio assets are used to generate the Group’s performance and are considered to be the most relevant to the
understanding of the operating performance of the Group. The assets are detailed in the following notes:
- Investment properties: relates to investment properties, both stabilised and under development
- Investments accounted for using the equity method: provides summarised financial information on the joint ventures and
investments with significant influence. The Group’s interests in property portfolio assets and held through investments in trusts
- Inventories: relates to the Group’s ownership of industrial and office assets or land held for repositioning, development and sale
- Non-current assets classified as held for sale: relates to investment properties which are expected to be sold within 12 months of
the balance sheet date and are currently being marketed for sale
Note 8 Investment properties
The Group’s investment properties consist of properties held for long-term rental yields and/or capital appreciation and property
that is being constructed or developed for future use as investment property. Investment properties are initially recognised at cost
including transaction costs. Investment properties are subsequently recognised at fair value.
The basis of valuations of investment properties is fair value, being the price that would be received to sell the asset in an orderly
transaction between market participants at the measurement date.
Changes in fair values are recorded in the Statement of Comprehensive Income. The gain or loss on disposal of an investment
property is calculated as the difference between the carrying amount of the asset at the date of disposal and the net proceeds from
disposal and is included in the Statement of Comprehensive Income in the year of disposal.
Subsequent redevelopment and refurbishment costs (other than repairs and maintenance) are capitalised to the investment property
where they result in an enhancement in the future economic benefits of the property.
Leasing fees incurred and incentives provided are capitalised and amortised over the lease periods to which they relate.
Financial Report 76
Property portfolio assets continued
Note 8 Investment properties continued
a) Reconciliation
Note
Office
$m
Industrial
$m
Development
$m
Opening balance at the beginning of the year
5,459.8
1,600.5
Additions
Acquisitions
Lease incentives
Amortisation of lease incentives
Rent straightlining
Disposals
Transfer to non-current assets classified as held
for sale
Transfer to inventories
11
10
Transfer from/(to) development properties
Net fair value gain/(loss) of investment properties
67.0
345.9
47.6
(62.0)
9.7
(44.0)
–
(250.7)
(103.1)
650.2
18.2
52.2
15.3
(14.9)
2.5
–
(2.0)
(45.2)
28.5
128.1
108.8
83.2
–
–
–
–
–
–
–
74.6
72.4
2018
$m
7,169.1
168.4
398.1
62.9
(76.9)
12.2
(44.0)
(2.0)
(295.9)
–
850.7
Closing balance at the end of the year
6,120.4
1,783.2
339.0
8,242.6
2017
$m
6,419.5
117.1
178.6
80.2
(69.4)
7.6
(0.8)
(13.0)
–
–
449.3
7,169.1
Acquisitions
- On 18 July 2017, settlement occurred for the acquisition of 100 Harris Street, Pyrmont for $327.5 million excluding acquisition costs
- On 25 July 2017, settlement occurred for the acquisition of 90 Mills Road, Braeside for $50.6 million excluding acquisition costs
b) Valuations process
Independent valuations are carried out for each individual property at least once every three years by a member of the Australian
Property Institute of Valuers. Each valuation firm and its signatory valuer are appointed on the basis that they are engaged for no
more than three consecutive valuations except properties under development and co-owned properties. Independent valuations
may be undertaken earlier where the Responsible Entity believes there is potential for a change in the fair value of the property being
the greater of 5% of the asset value, or $5.0 million. At 30 June 2018, all investment properties were independently externally valued.
The Group’s investment properties are required to be internally valued at least every six months at each reporting period (interim
and full-year) unless they have been independently externally valued. Internal valuations are compared to the carrying value of
investment properties at the reporting date. Where the Directors determine that the internal valuations present a more reliable
estimate of fair value the internal valuation is adopted as book value. Internal valuations are performed by the Group’s internal
valuers who hold recognised relevant professional qualifications and have previous experience as property valuers from major real
estate valuation firms.
An appropriate valuation methodology is utilised according to asset class. In relation to office and industrial assets this includes
the capitalisation approach (market approach) and the discounted cash flow approach (income approach). The valuation is also
compared to, and supported by, direct comparison to recent market transactions. The adopted capitalisation rates and discount
rates are determined based on industry expertise and knowledge and, where possible, a direct comparison to third party rates for
similar assets in a comparable location. Rental revenue from current leases and assumptions about future leases, as well as any
expected operational cash outflows in relation to the property, are also built into each asset assessment of fair value.
In relation to development properties under construction for future use as investment property, where reliably measurable, fair value
is determined based on the market value of the property on the assumption it had already been completed at the valuation date
(using the methodology as outlined above) less costs still required to complete the project, including an appropriate adjustment for
industry benchmarked profit and development risk.
Dexus 2018 Annual ReportFinancial ReportFinancial ReportNotes to the Financial Statementscontinued
77
c) Fair value measurement, valuation techniques and inputs
The following table represents the level of the fair value hierarchy and the associated unobservable inputs utilised in the fair value
measurement for each class of investment property.
Class of property
Office1
Fair value
hierarchy
Inputs used to measure fair value
2018
2017
Range of unobservable inputs
Level 3
Adopted capitalisation rate
4.63% – 9.00%
4.75% – 9.50%
Adopted discount rate
Adopted terminal yield
6.25% – 10.50%
6.63% – 10.50%
5.13% – 9.75%
5.25% – 9.50%
$307 – $1,319
Current net market rental (per sqm)
$346 – $1,338
Industrial
Level 3
Adopted capitalisation rate
5.50% – 11.00%
5.75% – 11.00%
Adopted discount rate
Adopted terminal yield
Current net market rental (per sqm)
Development – Industrial
Level 3
Land rate (per sqm)
1.
Includes developments and excludes car parks, retail and other.
6.75% – 11.00%
7.00% – 11.25%
6.00% – 11.00%
6.00% – 11.25%
$38 – $445
$38 – $677
$38 – $431
$35 – $445
Key estimates: inputs used to measure fair value of investment properties
Judgement is required in determining the following key assumptions:
- Adopted capitalisation rate: The rate at which net market rental revenue is capitalised to determine the value of a property.
The rate is determined with regard to market evidence and the prior external valuation
- Adopted discount rate: The rate of return used to convert cash flows, payable or receivable in the future, into present value.
It reflects the opportunity cost of capital, that is, the rate of return the cash can earn if put to other uses having similar risk.
The rate is determined with regard to market evidence and the prior external valuation
- Adopted terminal yield: The capitalisation rate used to convert the future net market rental revenue into an indication of the
anticipated value of the property at the end of the holding period when carrying out a discounted cash flow calculation.
The rate is determined with regard to market evidence and the prior external valuation
- Net market rental (per sqm): The net market rent is the estimated amount for which a property should lease between a lessor
and a lessee on appropriate lease terms in an arm’s length transaction
- Land rate (per sqm): The land rate is the market land value per sqm
Financial Report 78
Property portfolio assets continued
Note 8 Investment properties continued
d) Sensitivity information
Significant movement in any one of the inputs listed in the table above may result in a change in the fair value of the Group’s
investment properties as shown below.
Significant inputs
Adopted capitalisation rate
Adopted discount rate
Adopted terminal yield
Net market rental (per sqm)
Land rate (per sqm)
Fair value measurement sensitivity to
significant increase in input
Fair value measurement sensitivity to
significant decrease in input
Decrease
Increase
Increase
Decrease
Generally, a change in the assumption made for the adopted capitalisation rate is often accompanied by a directionally similar
change in the adopted terminal yield. The adopted capitalisation rate forms part of the capitalisation approach whilst the adopted
terminal yield forms part of the discounted cash flow approach.
Under the capitalisation approach, the net market rental has a strong interrelationship with the adopted capitalisation rate as the fair
value of the investment property is derived by capitalising, in perpetuity, the total net market rent receivable. An increase (softening) in
the adopted capitalisation rate may offset the impact to fair value of an increase in the total net market rent. A decrease (tightening)
in the adopted capitalisation rate may also offset the impact to fair value of a decrease in the total net market rent. A directionally
opposite change in the total net market rent and the adopted capitalisation rate may increase the impact to fair value.
The discounted cash flow is primarily made up of the discounted cash flow of net income over the cash flow period and the
discounted terminal value (which is largely based upon market rents grown at forecast market rental growth rates capitalised at
an adopted terminal yield). An increase (softening) in the adopted discount rate may offset the impact to fair value of a decrease
(tightening) in the adopted terminal yield. A decrease (tightening) in the discount rate may offset the impact to fair value of an
increase (softening) in the adopted terminal yield. A directionally similar change in the adopted discount rate and the adopted
terminal yield may increase the impact to fair value.
A decrease (softening) in the forecast rental growth rate may result in a negative impact on the discounted cash flow approach value
while a strengthening may have a positive impact on the value under the same approach.
e) Investment properties pledged as security
Refer to note 13 for information on investment properties pledged as security.
Dexus 2018 Annual ReportFinancial ReportFinancial ReportNotes to the Financial Statementscontinued 79
Note 9 Investments accounted for using the equity method
Investments are accounted for in the Financial Statements using the equity method of accounting (refer to the ‘About This Report’
section). Information relating to these entities is set out below.
Name of entity
Bent Street Trust
Dexus Creek Street Trust
Dexus Martin Place Trust 1
Grosvenor Place Holding Trust 2,3
Site 6 Homebush Bay Trust 2
Site 7 Homebush Bay Trust 2
Dexus 480 Q Holding Trust
Dexus Kings Square Trust
Dexus Office Trust Australia 4,5 (DOTA)
Dexus Industrial Trust Australia (DITA)
Dexus Eagle Street Pier Trust
Healthcare Wholesale Property Fund 6
Ownership interest
2018
%
33.3
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
23.8
2017
%
33.3
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
–
2018
$m
344.7
161.8
376.9
452.3
33.6
47.2
380.5
216.3
2,164.7
172.3
33.0
49.6
2017
$m
319.1
143.9
166.3
385.5
33.3
44.9
366.7
214.0
1,985.0
133.2
31.9
–
Total assets – investments accounted for using the equity method 7
4,432.9
3,823.8
1. On 19 July 2017, settlement occurred for the acquisition of MLC Centre, 19 Martin Place, Sydney for $361.3 million excluding acquisition costs. This represents
the Group’s 25% interest. The Group’s loan with related parties was subsequently repaid upon Dexus Martin Place Trust’s settlement of MLC Centre.
2. These entities are 50% owned by DOTA. The Group’s economic interest is therefore 75% when combined with the interest held by DOTA. These entities are
classified as joint ventures and are accounted for using the equity method as a result of contractual arrangements requiring unanimous decisions on all
relevant matters.
3. Grosvenor Place Holding Trust owns 50% of Grosvenor Place, at 225 George Street, Sydney, NSW. The Group’s economic interest in this property is
therefore 37.5%.
4. On 1 August 2017, settlement occurred on the disposal of 46 Colin Street, West Perth for $16.8 million excluding disposal costs, representing the Group’s
50% interest held through DOTA.
5. On 21 March 2018, settlement occurred for the disposal of 11 Waymouth Street, Adelaide for $101.3 million excluding disposal costs, representing the
Group’s 50% interest held through DOTA.
6. On 7 August 2017, Dexus invested in the Healthcare Wholesale Property Fund together with Commercial and General (C&G). On 21 December 2017,
additional investors invested in the fund and Dexus sold down its investment to 23.8%.
7. The Group’s share of investment properties in the investments accounted for using the equity method was $4,548.3 million (2017: $3,785.4 million).
The above entities were formed in Australia and their principal activity is property investment in Australia.
Financial Report 80
Property portfolio assets continued
Note 9 Investments accounted for using the equity method continued
Summarised Statement of Financial Position
Current assets
Cash and cash equivalents
Non-current assets classified as held for sale
Loans with related parties
Other current assets
Total current assets
Non-current assets
Investment properties
Investments accounted for using the equity method
Other non-current assets
Total non-current assets
Current liabilities
Provision for distribution
Borrowings
Other current liabilities
Total current liabilities
Non-current liabilities
Borrowings
Other non current liabilities
Total non-current liabilities
Net assets
Dexus Office
Trust Australia
Grosvenor Place
Holding Trust
Dexus 480Q
Holding Trust
Dexus Martin Place
Trust
Bent Street
Trust
Other joint
ventures
Total
2018
$m
20.3
–
–
3.9
24.2
2017
$m
15.9
–
–
4.4
20.3
2018
$m
0.1
–
–
2.1
2.2
2017
$m
2.1
–
–
0.7
2.8
2,008.4
1,865.8
452.5
385.0
384.3
366.5
372.2
350.0
323.3
714.4
607.2
4,281.8
3,547.8
266.5
0.5
231.9
0.3
–
–
–
–
2,275.4
2,098.0
452.5
385.0
384.4
366.6
372.2
350.0
323.3
720.0
607.3
4,554.5
3,780.2
17.1
74.5
24.8
116.4
11.0
–
11.0
21.3
74.5
26.5
122.3
11.0
–
11.0
–
–
2.4
2.4
–
–
–
–
–
2.3
2.3
–
–
–
2,172.2
1,985.0
452.3
385.5
380.5
366.7
376.9
166.3
344.7
319.1
721.6
601.2
4,448.2
3,823.8
Reconciliation of carrying amounts:
Opening balance at the beginning of the year
1,985.0
1,844.8
385.5
Additions
Share of net profit/(loss) after tax
Distributions recevied/receivable
Closing balance at the end of the year
Summarised Statement of Comprehensive Income
Property revenue
Property revaluations
Interest income
Gain/(loss) on sale of investment properties
Finance costs
Other expenses
Net profit/(loss) for the year
Total comprehensive icome/(loss) for the year
74.9
313.3
(208.5)
2,164.7
24.3
264.7
(148.8)
1,985.0
154.5
214.8
0.3
(2.6)
(4.8)
(48.9)
313.3
313.3
151.9
166.6
0.4
–
(5.0)
(49.2)
264.7
264.7
1.9
86.1
(21.2)
452.3
25.2
66.4
–
–
–
(5.5)
86.1
86.1
352.9
9.9
40.5
(17.8)
385.5
21.0
24.6
0.1
–
–
(5.2)
40.5
40.5
2018
$m
2.3
–
–
2.9
5.2
–
0.1
–
–
9.1
9.1
–
–
–
366.7
3.9
29.2
(19.3)
380.5
26.9
10.9
–
–
–
(8.6)
29.2
29.2
2017
$m
0.2
–
–
1.1
1.3
–
0.1
–
–
1.2
1.2
–
–
–
344.1
5.2
34.6
(17.2)
366.7
24.1
17.8
–
–
–
(7.3)
34.6
34.6
2018
$m
9.2
–
–
6.0
15.2
–
–
–
–
–
–
–
10.5
10.5
166.3
219.3
3.9
(12.6)
376.9
20.2
(9.9)
0.1
–
–
(6.5)
3.9
3.9
2017
$m
0.1
6.0
149.0
18.1
173.2
–
–
–
–
–
–
6.9
6.9
–
–
–
111.3
3.9
56.5
(5.4)
6.4
2.9
–
48.4
–
(1.2)
56.5
56.5
2018
$m
1.6
–
–
0.4
2.0
–
–
4.1
–
3.2
7.3
–
–
–
319.1
–
43.9
(18.3)
17.7
30.0
–
–
–
(3.8)
43.9
43.9
2017
$m
0.4
–
–
0.5
0.9
–
–
3.4
–
1.7
5.1
–
–
–
308.1
–
29.1
(18.1)
319.1
17.7
15.0
–
–
–
(3.6)
29.1
29.1
2018
$m
18.4
–
–
3.0
21.4
–
5.6
1.6
–
17.1
18.7
–
1.1
1.1
601.2
91.2
59.5
(38.0)
713.9
40.4
35.4
0.2
–
(0.2)
(16.3)
59.5
59.5
2017
$m
9.5
–
–
1.9
11.4
–
0.1
1.4
–
16.1
17.5
–
–
–
559.1
29.9
45.0
(32.8)
37.5
20.2
0.1
–
–
(12.8)
45.0
45.0
2018
$m
51.9
–
–
18.3
70.2
266.5
6.2
22.8
74.5
67.1
164.4
11.0
1.1
12.1
284.9
347.6
0.6
(2.6)
(5.0)
(89.7)
535.8
535.8
2017
$m
28.2
6.0
149.0
26.7
209.9
231.9
0.5
26.1
74.5
54.7
155.3
11.0
–
11.0
258.6
247.1
0.6
48.4
(5.0)
(79.3)
470.4
470.4
166.3
344.7
601.2
4,432.9
3,823.8
3,823.8
3,520.3
391.2
535.8
(317.9)
73.2
470.4
(240.1)
Dexus 2018 Annual ReportFinancial ReportFinancial ReportNotes to the Financial Statementscontinued 81
Property portfolio assets continued
Note 9 Investments accounted for using the equity method continued
Dexus Office
Trust Australia
Grosvenor Place
Holding Trust
Dexus 480Q
Holding Trust
Dexus Martin Place
Trust
Bent Street
Trust
Other joint
ventures
Total
Investments accounted for using the equity method
Summarised Statement of Financial Position
Non-current assets classified as held for sale
Current assets
Cash and cash equivalents
Loans with related parties
Other current assets
Total current assets
Non-current assets
Investment properties
Other non-current assets
Total non-current assets
Current liabilities
Provision for distribution
Borrowings
Other current liabilities
Total current liabilities
Non-current liabilities
Borrowings
Other non current liabilities
Total non-current liabilities
Net assets
Reconciliation of carrying amounts:
Additions
Share of net profit/(loss) after tax
Distributions recevied/receivable
Closing balance at the end of the year
Summarised Statement of Comprehensive Income
Property revenue
Property revaluations
Interest income
Finance costs
Other expenses
Gain/(loss) on sale of investment properties
Net profit/(loss) for the year
Total comprehensive icome/(loss) for the year
2018
$m
20.3
–
–
3.9
24.2
266.5
0.5
17.1
74.5
24.8
116.4
11.0
–
11.0
2017
$m
15.9
–
–
4.4
20.3
231.9
0.3
21.3
74.5
26.5
122.3
11.0
–
11.0
74.9
313.3
(208.5)
2,164.7
24.3
264.7
(148.8)
1,985.0
154.5
214.8
0.3
(2.6)
(4.8)
(48.9)
313.3
313.3
151.9
166.6
0.4
–
(5.0)
(49.2)
264.7
264.7
2018
$m
0.1
–
–
2.1
2.2
–
–
–
–
2.4
2.4
–
–
–
1.9
86.1
(21.2)
452.3
25.2
66.4
–
–
–
(5.5)
86.1
86.1
2017
$m
2.1
–
–
0.7
2.8
–
–
–
–
2.3
2.3
–
–
–
352.9
9.9
40.5
(17.8)
385.5
21.0
24.6
0.1
–
–
(5.2)
40.5
40.5
Opening balance at the beginning of the year
1,985.0
1,844.8
385.5
2018
$m
2.3
–
–
2.9
5.2
2017
$m
0.2
–
–
1.1
1.3
2018
$m
9.2
–
–
6.0
15.2
2,008.4
1,865.8
452.5
385.0
384.3
366.5
372.2
2,275.4
2,098.0
452.5
385.0
384.4
366.6
372.2
–
0.1
–
0.1
–
–
–
–
9.1
9.1
–
–
–
–
–
1.2
1.2
–
–
–
–
–
10.5
10.5
–
–
–
2017
$m
0.1
6.0
149.0
18.1
173.2
–
–
–
–
–
–
6.9
6.9
–
–
–
2018
$m
1.6
–
–
0.4
2.0
2017
$m
0.4
–
–
0.5
0.9
2018
$m
18.4
–
–
3.0
21.4
2017
$m
9.5
–
–
1.9
11.4
2018
$m
51.9
–
–
18.3
70.2
2017
$m
28.2
6.0
149.0
26.7
209.9
350.0
323.3
714.4
607.2
4,281.8
3,547.8
–
–
–
–
–
5.6
–
0.1
266.5
6.2
231.9
0.5
350.0
323.3
720.0
607.3
4,554.5
3,780.2
4.1
–
3.2
7.3
–
–
–
3.4
–
1.7
5.1
–
–
–
1.6
–
17.1
18.7
–
1.1
1.1
1.4
–
16.1
17.5
–
–
–
22.8
74.5
67.1
164.4
11.0
1.1
12.1
26.1
74.5
54.7
155.3
11.0
–
11.0
2,172.2
1,985.0
452.3
385.5
380.5
366.7
376.9
166.3
344.7
319.1
721.6
601.2
4,448.2
3,823.8
366.7
3.9
29.2
(19.3)
380.5
26.9
10.9
–
–
–
(8.6)
29.2
29.2
344.1
5.2
34.6
(17.2)
366.7
24.1
17.8
–
–
–
(7.3)
34.6
34.6
166.3
219.3
3.9
(12.6)
376.9
20.2
(9.9)
0.1
–
–
(6.5)
3.9
3.9
111.3
3.9
56.5
(5.4)
319.1
–
43.9
(18.3)
166.3
344.7
6.4
2.9
–
48.4
–
(1.2)
56.5
56.5
17.7
30.0
–
–
–
(3.8)
43.9
43.9
308.1
–
29.1
(18.1)
319.1
17.7
15.0
–
–
–
(3.6)
29.1
29.1
601.2
91.2
59.5
(38.0)
713.9
40.4
35.4
0.2
–
(0.2)
(16.3)
59.5
59.5
559.1
29.9
45.0
(32.8)
3,823.8
3,520.3
391.2
535.8
(317.9)
73.2
470.4
(240.1)
601.2
4,432.9
3,823.8
37.5
20.2
0.1
–
–
(12.8)
45.0
45.0
284.9
347.6
0.6
(2.6)
(5.0)
(89.7)
535.8
535.8
258.6
247.1
0.6
48.4
(5.0)
(79.3)
470.4
470.4
Financial Report 82
Property portfolio assets continued
Note 10 Inventories
Development properties held for repositioning, construction and sale are recorded at the lower of cost or net realisable value. Cost is
assigned by specific identification and includes the cost of acquisition , and development and holding costs such as borrowing costs,
rates and taxes. Holding costs incurred after completion of development are expensed.
Development revenue includes proceeds on the sale of inventory and revenue earned through the provision of development services
on assets sold as inventory. Revenue earned on the provision of development services is recognised using the percentage complete
method. The stage of completion is measured by reference to costs incurred to date as a percentage of estimated total costs for
each contract. Where the project result can be reliably estimated, development services revenue and associated expenses are
recognised in profit or loss. Where the project result cannot be reliably estimated, profits are deferred and the difference between
consideration received and expenses incurred is carried forward as either a receivable or payable. Development services revenue
and expenses are recognised immediately when the project result can be reliably estimated.
Transfers from investment properties to inventories occur when there is a change in intention regarding the use of the property from an
intention to hold for rental income or capital appreciation purposes to an intention to develop and sell. The transfer price is recorded as
the fair value of the property as at the date of transfer. Development activities will commence immediately after they transfer.
Key estimate: net realisable value (NRV) of inventories
NRV is determined using the estimated selling price in the ordinary course of business less estimated costs to bring inventories to
their finished condition, including marketing and selling expenses. NRV is based on the most reliable evidence available at the
time and the amount the inventories are expected to be realised. These key assumptions are reviewed annually or more frequently
if indicators of impairment exist. Key estimates have been reviewed and no impairment provisions have been recognised.
a) Development properties held for sale
Current assets
Development properties held for sale
Total current assets – inventories
Non-current assets
Development properties held for sale
Total non-current assets – inventories
Total assets – inventories
b) Reconciliation
Opening balance at the beginning of the year
Transfer from investment properties
Disposals
Impairment
Acquisitions and additions
Closing balance at the end of the year
2018
$m
37.6
37.6
507.1
507.1
544.7
2018
$m
211.3
295.9
(10.0)
(0.6)
48.1
544.7
2017
$m
–
–
211.3
211.3
211.3
2017
$m
276.0
–
(148.3)
–
83.6
211.3
Note
8
Disposals
On 22 June 2018, 140 George Street, Parramatta was sold to DOTA. As the asset was sold to a joint venture, the Group eliminated 50% of the
proceeds in line with its investment in the joint venture.
Note 11 Non-current assets classified as held for sale
Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction
rather than through continuing use, and a sale is considered highly probable.
Non-current assets classified as held for sale are presented separately from the other assets in the balance sheet. Non-current
assets classified as held for sale relate to investment properties and are measured at fair value.
As at 30 June 2018, the held for sale balance relates to Truganina land lots to be disposed of in the next 12 months.
Disposals
- On 7 July 2017, settlement occurred on the sale of 30-68 Tarras Road, Altona North for gross proceeds of $13.1 million.
- On 31 May 2018, settlement occurred on the Group’s remaining 50% share of Southgate Complex at 3 Southgate Avenue, Melbourne
for gross proceeds of $289.0 million.
Dexus 2018 Annual ReportFinancial ReportFinancial ReportNotes to the Financial Statementscontinued
83
Capital and financial risk management and working capital
In this section
The Group’s overall risk management program focuses on reducing volatility from impacts of movements in financial markets and
seeks to minimise potential adverse effects on the financial performance of the Group.
Note 12 Capital and financial risk management outlines how the Group manages its exposure to a variety of financial risks
(interest rate risk, foreign currency risk, liquidity risk and credit risk) and details the various derivative financial instruments entered
into by the Group.
The Board determines the appropriate capital structure of the Group, how much is borrowed from financial institutions and capital
markets (debt), and how much is raised from security holders (equity) in order to finance the Group’s activities both now and in the
future. This capital structure is detailed in the following notes:
- Debt: Interest bearing liabilities in note 13, Loans with related parties in note 14 and Commitments and contingencies in note 15
- Equity: Contributed equity in note 16 and Reserves and retained profits in note 17
Note 18 provides a breakdown of the working capital balances held in the Statement of Financial Position.
Note 12 Capital and financial risk management
Capital and financial risk management is carried out through a centralised treasury function which is governed by a Board approved
Treasury Policy. The Group has an established governance structure which consists of the Group Management Committee and
Capital Markets Committee.
The Board has appointed a Group Management Committee responsible for achieving Dexus’s goals and objectives, including the
prudent financial and risk management of the Group. A Capital Markets Committee has been established to advise the Group
Management Committee.
The Capital Markets Committee is a management committee that is accountable to the Board. It convenes at least quarterly and
conducts a review of financial risk management exposures including liquidity, funding strategies and hedging. It is also responsible for
the development of financial risk management policies and funding strategies for recommendation to the Board, and the approval of
treasury transactions within delegated limits and powers.
a) Capital risk management
The Group manages its capital to ensure that entities within the Group will be able to continue as a going concern while maximising
the return to owners through the optimisation of the debt and equity balance.
The capital structure of the Group consists of debt, cash and cash equivalents and equity attributable to security holders. The Group
continuously monitors its capital structure and it is managed in consideration of the following factors:
- the cost of capital and the financial risks associated with each class of capital
- gearing levels and other debt covenants
- potential impacts on net tangible assets and security holders’ equity
- potential impacts on the Group’s credit rating
- other market factors
The Group has a stated target gearing level of 30% to 40%. The table below details the calculation of the gearing ratio in accordance
with our primary financial covenant requirements.
Total interest bearing liabilities 1
Total tangible assets 2
Gearing ratio
Gearing ratio (look-through) 3
2018
$m
3,164.5
13,367.8
23.7%
24.1%
2017
$m
2,486.8
11,638.5
21.4%
22.1%
1. Total interest bearing liabilities excludes deferred borrowing costs and includes the impact of foreign currency fluctuations of cross currency swaps.
2. Total tangible assets comprise total assets less intangible assets, derivatives and deferred tax balances.
3. The look-through gearing ratio is adjusted for cash and debt in equity accounted investments and is not a financial covenant.
The Group is rated A- by Standard & Poor’s (S&P) and A3 by Moody’s. The Group is required to comply with certain financial covenants
in respect of its interest bearing liabilities. During the 2018 and 2017 reporting periods, the Group was in compliance with all of its
financial covenants.
DXFM is the Responsible Entity for the managed investment schemes (DDF, DOT, DIT and DXO) that are stapled to form the Group.
DXFM has been issued with an Australian Financial Services Licence (AFSL). The licence is subject to certain capital requirements
including the requirement to maintain liquidity above specified limits. DXFM must also prepare rolling cash projections over at least
the next 12 months and demonstrate it will have access to sufficient financial resources to meet its liabilities that are expected to be
payable over that period. Cash projections and assumptions are approved, at least quarterly, by the Board of the Responsible Entity.
Financial Report 84
Capital and financial risk management and working capital continued
Note 12 Capital and financial risk management continued
a) Capital risk management continued
DWPL, a wholly owned entity, has been issued with an AFSL as it is the Responsible Entity for Dexus Wholesale Property Fund (DWPF).
Dexus Wholesale Management Limited (DWML), a wholly owned entity, has been issued with an AFSL as it is the trustee of third party
managed funds. These entities are subject to the capital requirements described above. Dexus Wholesale Funds Limited (DWFL),
a wholly owned entity, has been issued with an AFSL as it is the Responsible Entity for Healthcare Wholesale Property Fund (HWPF).
Dexus Investment Management Limited (DIML), a wholly owned entity, has been issued with an AFSL as the Responsible Entity for
Dexus Industrial Fund (DIF), a wholly owned entity. These entities are subject to the capital requirements as described.
b) Financial risk management
The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential
adverse effects on the financial performance of the Group. The Group’s principal financial instruments, other than derivatives,
comprise cash, bank loans and capital markets issuance. The main purpose of financial instruments is to manage liquidity and hedge
the Group’s exposure to financial risks namely:
- interest rate risk
- foreign currency risk
- liquidity risk
- credit risk
The Group uses derivatives to reduce the Group’s exposure to fluctuations in interest rates and foreign exchange rates. These
derivatives create an obligation or a right that effectively transfers one or more of the risks associated with an underlying financial
instrument, asset or obligation. Derivative financial instruments that the Group may use to hedge its risks include:
- interest rate swaps and interest rate options (together interest rate derivatives)
- cross currency interest rate swaps
- foreign exchange contracts
The Group does not trade in derivative instruments for speculative purposes. The Group uses different methods to measure the
different types of risks to which it is exposed, including monitoring the current and forecast levels of exposure and conducting
sensitivity analysis.
i) Market risk
Interest rate risk
Interest rate risk arises from interest bearing financial assets and liabilities that the Group utilises. Non-derivative interest bearing
financial instruments are predominantly short-term liquid assets and long-term debt issued at fixed rates which expose the Group to fair
value interest rate risk as the Group may pay higher interest costs than if it were at variable rates. The Group’s borrowings which have
a variable interest rate give rise to cash flow interest rate risk due to movements in variable interest rates.
The Group’s risk management policy for interest rate risk seeks to minimise the effects of interest rate movements on its asset and
liability portfolio through active management of the exposures. The policy prescribes minimum and maximum hedging amounts for
the Group, which is managed on a portfolio basis.
The Group maintains a mix of offshore and local currency fixed rate and variable rate debt, as well as a mix of long-term and short-term
debt. The Group primarily enters into interest rate derivatives and cross currency interest rate swap agreements to manage the
associated interest rate risk. The Group hedges the interest rate and currency risk on its foreign currency borrowings by entering into
cross currency swaps, which have the economic effect of converting foreign currency borrowings to local currency borrowings at
contracted rates. The derivative contracts are recorded at fair value in the Statement of Financial Position, being the market value
as quoted in an active market.
As at 30 June 2018, 88% (2017: 81%) of the interest bearing liabilities of the Group were hedged. The average hedged percentage for
the financial year was 71% (2017: 65%).
Interest rate derivatives require settlement of net interest receivable or payable generally each 90 or 180 days. The settlement dates
coincide with the dates on which the interest is payable on the underlying debt. The receivable and payable legs on interest rate
derivative contracts are settled on a net basis. The net notional amount of average fixed rate debt and interest rate derivatives in
place in each year and the weighted average effective hedge rate is set out below:
June 2019
$m
June 2020
$m
June 2021
$m
June 2022
$m
June 2023
$m
A$ fixed rate debt
A$ hedged1
1,045.5
938.5
886.5
1,546.6
1,670.8
1,438.3
824.0
856.7
Combined fixed rate debt and derivatives (A$ equivalent)
2,592.1
2,609.3
2,324.8
1,680.7
Hedge rate (%)
2.90%
2.74%
2.65%
2.66%
623.1
266.7
889.8
2.79%
1. Amounts do not include fixed rate debt that has been swapped to floating rate debt through cross currency swaps.
Dexus 2018 Annual ReportFinancial ReportFinancial ReportNotes to the Financial Statementscontinued 85
Sensitivity analysis on interest expense
The table below shows the impact on the Group’s net interest expense of a 50 basis point movement in market interest rates. The
sensitivity on cash flow arises due to the impact that a change in interest rates will have on the Group’s floating rate debt and
derivative cash flows on average during the financial year. Net interest expense is only sensitive to movements in market rates to the
extent that floating rate debt is not hedged.
+/- 0.50% (50 basis points)
Total A$ equivalent
2018
(+/-) $m
2017
(+/-) $m
7.5
7.5
6.5
6.5
The movement in interest expense is proportional to the movement in interest rates.
Sensitivity analysis on fair value of interest rate derivatives
The sensitivity analysis on interest rate derivatives below shows the effect on net profit or loss of changes in the fair value of interest
rate derivatives for a 50 basis point movement in short-term and long-term market interest rates. The sensitivity on fair value arises
from the impact that changes in market rates will have on the valuation of the interest rate derivatives.
The fair value of interest rate derivatives is calculated as the present value of estimated future cash flows on the instruments.
Although interest rate derivatives are transacted for the purpose of providing the Group with an economic hedge, the Group has
elected not to apply hedge accounting to these instruments. Accordingly, gains or losses arising from changes in the fair value are
reflected in the profit or loss.
+/- 0.50% (50 basis points)
Total A$ equivalent
2018
(+/-) $m
19.1
19.1
2017
(+/-) $m
16.2
16.2
Sensitivity analysis on fair value of cross currency swaps
The sensitivity analysis on cross currency interest rate swaps below shows the effect on net profit or loss for changes in the fair value
for a 50 basis point increase and decrease in market rates. The sensitivity on fair value arises from the impact that changes in short-
term and long-term market rates will have on the valuation of the cross currency swaps. The sensitivity analysis excludes the impact
of hedge accounted cross currency swaps.
+/- 0.50% (50 basis points)
Total A$ equivalent
US$ (A$ equivalent)
2018
(+/-) $m
4.5
4.5
2017
(+/-) $m
6.4
6.4
Foreign currency risk
Foreign currency risk refers to the risk that the value or the cash flows arising from a financial commitment, or recognised asset or
liability will fluctuate due to changes in foreign currency rates. The Group’s foreign currency risk arises primarily from:
- highly probable forecast transactions denominated in foreign currency
- borrowings denominated in foreign currency
The objective of the Group’s foreign exchange risk management policy is to ensure that movements in exchange rates have minimal
adverse impact on the Group’s foreign currency assets and liabilities. Refer to note 13 for the USD foreign currency exposures and
management thereof via cross currency interest rate swaps.
Foreign currency assets and liabilities
Where foreign currency borrowings are used to fund Australian investments, the Group transacts cross currency swaps to reduce the
risk that movements in foreign exchange rates will have an impact on security holder equity and net tangible assets.
ii) Liquidity risk
Liquidity risk is associated with ensuring that there are sufficient funds available to meet the Group’s financial commitments as and
when they fall due and planning for any unforeseen events which may curtail cash flows. The Group identifies and manages liquidity
risk across the following categories:
- short-term liquidity management covering the month ahead on a rolling basis with continuous monitoring of forecast and actual
cash flows
- medium-term liquidity management of liquid assets, working capital and standby facilities to cover Group cash requirements over
the next 1-24 month period. The Group maintains a level of committed borrowing facilities above the forecast committed debt
requirements (liquidity headroom buffer). Committed debt includes future expenditure that has been approved by the Board or
Investment Committee (as required within delegated limits)
- long-term liquidity management through ensuring an adequate spread of maturities of borrowing facilities so that refinancing risk
is not concentrated in certain time periods, and ensuring an adequate diversification of funding sources where possible, subject to
market conditions
Financial Report 86
Capital and financial risk management and working capital continued
Note 12 Capital and financial risk management continued
b) Financial risk management continued
ii) Liquidity risk continued
Refinancing risk
Refinancing risk is the risk that the Group:
- will be unable to refinance its debt facilities as they mature and/or
- will only be able to refinance its debt facilities at unfavourable interest rates and credit market conditions (margin price risk)
The Group’s key risk management strategy for margin price risk on refinancing is to spread the maturities of debt facilities over
different time periods to reduce the volume of facilities to be refinanced and the exposure to market conditions in any one period.
An analysis of the contractual maturities of the Group’s interest bearing liabilities and derivative financial instruments is shown in the
table below. The amounts in the table represent undiscounted cash flows.
2018
2017
Within
one
year
$m
Between
one and
two years
$m
Between
two and
five years
$m
After
five
years
$m
Within
one
year
$m
Between
one and
two years
$m
Between
two and
five years
$m
After
five
years
$m
Payables
(149.7)
–
–
–
(162.1)
–
–
–
Interest bearing liabilities & interest
Fixed interest rate liabilities
(333.8)
(248.4)
(927.6)
(2,253.1)
(111.1)
(304.1)
(725.6)
(1,732.8)
Floating interest rate liabilities
(35.9)
(517.8)
(699.2)
(256.4)
(195.6)
(526.5)
(1,095.3)
(259.0)
Total interest bearing liabilities & interest 1
(369.7)
(766.2)
(1,626.8)
(2,509.5)
(306.7)
(830.6)
(1,820.9)
(1,991.8)
Derivative financial instruments
Derivative assets
Derivative liabilities
77.7
78.2
543.2
1,793.0
58.1
58.1
486.3
1,130.5
(65.0)
(65.5)
(513.4)
(1,911.9)
(44.5)
(45.6)
(444.5)
(1,082.0)
Total net derivative financial instruments 2
12.7
12.7
29.8
(118.9)
13.6
12.5
41.8
48.5
1. Refer to note 13. Excludes deferred borrowing costs but includes estimated fees and interest.
2. The notional maturities on derivatives are shown for cross currency interest rate swaps (refer to interest rate risk) as they are the only instruments where
a principal amount is exchanged. For interest rate derivatives, only the net interest cash flows (not the notional principal) are included. Refer to note 12(c)
for fair value of derivatives. Refer to note 15(b) for financial guarantees.
iii) Credit risk
Credit risk is the risk that the counterparty will not fulfil its obligations under the terms of a financial instrument and will cause financial
loss to the Group. The Group has exposure to credit risk on all financial assets included in the Group’s Statement of Financial Position.
The Group manages this risk by:
- adopting a process for determining an approved counterparty, with consideration of qualitative factors as well as the counterparty’s
credit rating
- regularly monitoring counterparty exposure within approved credit limits that are based on the lower of an S&P, Moody’s and
Fitch credit rating. The exposure includes the current market value of in-the-money contracts and the potential exposure, which is
measured with reference to credit conversion factors as per APRA guidelines
- entering into International Swaps and Derivatives Association (ISDA) Master Agreements once a financial institution counterparty is
approved
- for some trade receivables, obtaining collateral where necessary in the form of bank guarantees and tenant bonds and
- regularly monitoring loans and receivables on an ongoing basis
A minimum S&P rating of A– (or Moody’s or Fitch equivalent) is required to become or remain an approved counterparty unless
otherwise approved by the Dexus Board.
The Group is exposed to credit risk on cash balances and on derivative financial instruments with financial institutions. The Group has
a policy that sets limits as to the amount of credit exposure to each financial institution. New derivatives and cash transactions are
limited to financial institutions that meet minimum credit rating criteria in accordance with the Group’s policy requirements.
Financial instrument transactions are spread among a number of approved financial institutions within specified credit limits to
minimise the Group’s exposure to any one counterparty. As a result, there is no significant concentration of credit risk for financial
instruments. The maximum exposure to credit risk at 30 June 2018 is the carrying amounts of financial assets recognised on the
Statement of Financial Position.
The Group is exposed to credit risk on trade receivable balances. The Group has a policy to continuously assess and monitor the
credit quality of trade debtors on an ongoing basis. Given the historical profile and exposure of the trade receivables, it has been
determined that no significant concentrations of credit risk exists for trade receivables balances. The maximum exposure to credit risk
at 30 June 2018 is the carrying amounts of the trade receivables recognised on the Statement of Financial Position.
Dexus 2018 Annual ReportFinancial ReportFinancial ReportNotes to the Financial Statementscontinued
87
iv) Fair value
As at 30 June 2018 and 30 June 2017, the carrying amounts of financial assets and liabilities are held at fair value excluding interest
bearing liabilities which have a carrying amount of $3,371.1 million and a fair value of $3,587.3 million. The Group uses the following
methods in the determination and disclosure of the fair value of financial instruments:
Level 1: The fair value is calculated using quoted prices in active markets.
Level 2: The fair value is determined using inputs other than quoted prices included in Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: The fair value is estimated using inputs for the asset or liability that are not based on observable data.
All financial instruments, excluding cash, were measured at Level 2 for the periods presented in this report. During the year, there were
no transfers between Level 1, 2 and 3 fair value measurements.
Key assumptions: fair value of derivatives and interest bearing liabilities
The fair value of derivatives and interest bearing liabilities has been determined based on observable market inputs (interest
rates, exchange rates and currency basis) and applying a credit or debit value adjustment based on the current credit worthiness
of counterparties and the Group.
v) Offsetting financial assets and financial liabilities
Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position where there is a legally
enforceable right to set-off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle
the liability simultaneously. No financial assets and liabilities are currently held under netting arrangements.
Master Netting arrangements – not currently enforceable
Agreements with derivative counterparties are based on an ISDA Master Agreement. Under the terms of these arrangements, where
certain credit events occur (such as default), the net position owing/receivable to a single counterparty in the same currency will be
taken as owing and all the relevant arrangements terminated. As the Group does not presently have a legally enforceable right of
set-off, these amounts have not been offset in the Statement of Financial Position.
c) Derivative financial instruments
A derivative is a type of financial instrument typically used to manage risk. A derivative’s value changes over time in response to
underlying variables including interest rates or exchange rates and is entered into for a fixed period. A hedge is where a derivative
is used to manage an underlying exposure and the Group uses derivatives to manage its exposure to interest rates and foreign
exchange risk accordingly.
Written policies and limits are approved by the Board of Directors of the Responsible Entity, in relation to the use of financial
instruments to manage financial risks. The Responsible Entity regularly reviews the Group’s exposures and updates its treasury
policies and procedures. The Group does not trade in derivative instruments for speculative purposes.
Derivatives including interest rate derivatives, cross currency swaps, and foreign exchange contracts, are measured at fair value with
any changes in fair value recognised in the Statement of Comprehensive Income.
At inception the Group can elect to formally designate and document the relationship between certain hedge derivative instruments
(cross currency interest rate swaps only) and the associated hedged items (foreign currency bonds only).
The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are
used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of
hedged items.
Fair value hedge
A fair value hedge is a hedge of the exposure to changes in fair value of an asset or liability that is attributable to a particular risk
and could affect the Statement of Comprehensive Income. Changes in the fair value of derivatives (hedging instruments) that are
designated as fair value hedges are recorded in profit or loss, together with any changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk (hedged item).
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for
which the effective interest method is used is amortised to profit or loss over the period to maturity using a recalculated effective
interest rate.
Cash flow hedge
A cash flow hedge is a hedge of the exposure to variability in cash flows attributable to a particular risk to a highly probable forecast
transaction pertaining to an asset or liability. The effective portion of changes in the fair value of derivatives that are designated as
cash flow hedges is recognised in other comprehensive income in equity via the cash flow hedge reserve. Amounts accumulated
in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss. Any gain or loss related to
ineffectiveness is recognised in profit or loss immediately.
Hedge accounting is discontinued when the hedging instrument expires, is terminated, is no longer in an effective hedge relationship,
is de-designated, or the forecast transaction is no longer expected to occur. The fair value gain or loss of derivatives recorded
in equity is recognised in profit or loss over the period that the forecast transaction is recorded in profit or loss. If the forecast
transaction is no longer expected to occur, the cumulative gain or loss in equity is recognised in profit or loss immediately.
Financial Report 88
Capital and financial risk management and working capital continued
Note 12 Capital and financial risk management continued
c) Derivative financial instruments continued
Current assets
Interest rate derivative contracts
Cross currency swap contracts
Other derivative contracts
Total current assets – derivative financial instruments
Non-current assets
Interest rate derivative contracts
Cross currency swap contracts
Total non-current assets – derivative financial instruments
Current liabilities
Interest rate derivative contracts
Cross currency swap contracts
Total current liabilities – derivative financial instruments
Non-current liabilities
Interest rate derivative contracts
Cross currency swap contracts
Total non-current liabilities – derivative financial instruments
Net derivative financial instruments
2018
$m
2.6
14.9
6.6
24.1
2.8
308.0
310.8
5.5
1.2
6.7
21.5
57.1
78.6
249.6
2017
$m
2.2
13.3
–
15.5
9.7
297.0
306.7
7.8
–
7.8
37.8
11.3
49.1
265.3
Note 13 Interest bearing liabilities
Borrowings are initially recognised at fair value net of transaction costs and subsequently measured at amortised cost using the
effective interest rate method. Under the effective interest rate method, any transaction fees, costs, discounts and premiums directly
related to the borrowings are capitalised to borrowings and amortised in profit or loss over the expected life of the borrowings.
If there is an effective fair value hedge of borrowings, a fair value adjustment will be applied based on the mark to market movement
in the benchmark component of the borrowings. This movement is recognised in the profit or loss. Refer note 12(c) Capital and
financial risk management for further detail.
All borrowings with contractual maturities greater than 12 months after reporting date are classified as non-current liabilities.
Current
Unsecured
Medium term notes
Total unsecured
Total current liabilities – interest bearing liabilities
Non-current
Unsecured
US senior notes
Bank loans
Commercial paper
Medium term notes
Total unsecured
Deferred borrowing costs
Total non-current liabilities – interest bearing liabilities
Total interest bearing liabilities
2018
$m
2017
$m
Note
(e)
205.1
205.1
205.1
(a), (b)
2,065.7
(c)
(d)
(e)
520.0
100.0
480.3
3,166.0
(11.5)
3,154.5
3,359.6
–
–
–
1,427.5
556.0
100.0
624.7
2,708.2
(10.4)
2,697.8
2,697.8
Dexus 2018 Annual ReportFinancial ReportFinancial ReportNotes to the Financial Statementscontinued 89
Financing arrangements
The following table summarises the maturity profile of the Group’s financing arrangements:
Type of facility
Notes
Currency
Security
Maturity Date
Utilised 1
$m
Facility Limit
$m
US senior notes (144A)
US Senior notes (USPP) 1
US Senior notes (USPP)
Medium term notes
Commercial paper
(a)
(b)
(b)
(e)
(d)
US$
US$
A$
A$
A$
Unsecured
Jun-28 to Nov-32
Unsecured
Sep-18 to May-27
Unsecured
Sep-21
Unsecured
Mar-21
337.8
337.8
Unsecured
Jul-23 to Nov-32
1,535.7
1,535.7
Multi-option revolving credit facilities
(c) Multi Currency
Unsecured
Nov-19 to Jun-24
Total
Bank guarantee in place
Unused at balance date
250.0
685.4
100.0
1,450.0
4,358.9
250.0
685.4
100.0
520.0
3,428.9
(43.4)
886.6
1.
Includes drawn amounts and excludes fair value adjustments recorded in interest bearing liabilities in relation to effective fair value hedges.
Each of the Group’s unsecured borrowing facilities are supported by guarantee arrangements and have negative pledge provisions
which limit the amount and type of encumbrances that the Group can have over its assets and ensures that all senior unsecured
debt ranks pari passu.
a) US senior notes (144A)
This includes a total of US$250.0 million (A$338.2 million) of US senior notes with a maturity of March 2021. The USD exposure is
economically hedged using cross currency interest rate swaps with a notional value of US$250.0 million.
b) US senior notes (USPP)
This includes a total of US$1,135.0 million and A$250.0 million (A$1,785.7 million) of US senior notes with a weighted average maturity
of June 2028. US$1,135.0 million is designated as an accounting hedge using cross currency interest rate swaps with the same
notional value.
c) Multi-option revolving credit facilities
This includes 17 facilities maturing between November 2019 and June 2024 with a weighted average maturity of August 2021.
A$43.4 million is utilised as bank guarantees for AFSL requirements and other business requirements including developments.
d) Commercial paper
This includes a total of A$100.0 million of Commercial Paper which is supported by a standby facility of A$100.0 million with
a weighted average maturity of September 2021. The standby facility has same day availability.
e) Medium term notes
This includes a total of A$680.0 million of Medium Term Notes with a weighted average maturity of April 2023. The remaining
A$5.4 million is the net premium on the issue of these instruments.
Note 14 Loans with related parties
There are no loans with related parties as at 30 June 2018. The 30 June 2017 balance represented a non-interest bearing loan
provided by Dexus Martin Place Trust, which is co-owned by the Group and DWPF. The balance of this loan represented the Group’s
share of the proceeds from the disposal of 39 Martin Place, Sydney less the deposit paid for MLC Centre, 19 Martin Place, Sydney.
This loan was subsequently repaid on 19 July 2017 upon Dexus Martin Place Trust’s settlement of the acquisition of the MLC Centre.
Note 15 Commitments and contingencies
a) Commitments
Capital commitments
The following amounts represent remaining capital expenditure on investment properties and inventories contracted at the end
of each reporting period but not recognised as liabilities payable:
Investment properties
Inventories
Investments accounted for using the equity method
Total capital commitments
2018
$m
289.5
1.2
48.6
339.3
2017
$m
122.8
24.6
55.4
202.8
Financial Report 90
Capital and financial risk management and working capital continued
Note 15 Commitments and contingencies continued
a) Commitments continued
Lease payable commitments
The future minimum lease payments payable by the Group are:
Within one year
Later than one year but not later than five years
Later than five years
Total lease payable commitments
Lease receivable commitments
The future minimum lease payments receivable by the Group are:
Within one year
Later than one year but not later than five years
Later than five years
Total lease receivable commitments
2018
$m
7.4
21.7
3.4
32.5
2018
$m
508.3
1,864.9
625.0
2,998.2
2017
$m
5.8
20.0
1.6
27.4
2017
$m
487.8
1,400.4
716.6
2,604.8
b) Contingencies
DDF, together with DIT, DOT and DXO, is a guarantor of A$4,358.9 million of interest bearing liabilities (refer to note 13). The guarantees
have been given in support of debt outstanding and drawn against these facilities and may be called upon in the event that a
borrowing entity has not complied with certain requirements such as failure to pay interest or repay a borrowing, whichever is earlier.
During the period no guarantees were called.
The Group has bank guarantees of $43.4 million, comprising $42.2 million held to comply with the terms of the Australian Financial
Services Licences (AFSL) and $1.2 million largely in respect of developments.
The above guarantees are issued in respect of the Group and represent an additional liability to those already existing in interest
bearing liabilities on the Consolidated Statement of Financial Position.
The Directors of the Responsible Entity are not aware of any other contingent liabilities in relation to the Group, other than those
disclosed in the Financial Statements, which should be brought to the attention of security holders as at the date of completion
of this report.
Note 16 Contributed equity
Number of securities on issue
Opening balance at the beginning of the year
Issue of additional equity
Buy-back of contributed equity
Closing balance at the end of the year
2018
No. of
securities
2017
No. of
securities
1,016,967,300
967,947,692
437,242
49,019,608
(207,665)
–
1,017,196,877
1,016,967,300
Each stapled security ranks equally with all other stapled securities for the purposes of distributions and on termination of the Group.
Each stapled security entitles the holder to vote in accordance with the provisions of the Constitutions and the Corporations Act 2001.
Transaction costs arising on the issue of equity instruments are recognised directly in equity (net of tax) as a reduction of the
proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection
with the issue of those equity instruments and which would not have been incurred had those instruments not been issued.
On 14 February 2018, the Group announced its intentions to initiate an on-market securities buy-back opportunity to enhance
investor returns.
Dexus 2018 Annual ReportFinancial ReportFinancial ReportNotes to the Financial Statementscontinued Note 17 Reserves
Asset revaluation reserve
Cash flow hedge reserve
Security-based payments reserve
Treasury securities reserve
Total reserves
Movements:
Asset revaluation reserve
Opening balance at the beginning of the year
Closing balance at the end of the year
Cash flow hedge reserve
Opening balance at the beginning of the year
Changes in the fair value of cash flow hedges
Closing balance at the end of the year
Security-based payments reserve
Opening balance at the beginning of the year
Issue of securities to employees
Security-based payments expense
Closing balance at the end of the year
Treasury securities reserve
Opening balance at the beginning of the year
Issue of securities to employees
Purchase of securities
Closing balance at the end of the year
91
2017
$m
42.7
6.9
10.8
(11.7)
48.7
42.7
42.7
9.1
(2.2)
6.9
7.4
(2.8)
6.2
10.8
(7.1)
2.8
(7.4)
(11.7)
2018
$m
42.7
(12.5)
12.5
(15.5)
27.2
42.7
42.7
6.9
(19.4)
(12.5)
10.8
(3.3)
5.0
12.5
(11.7)
3.3
(7.1)
(15.5)
Nature and purpose of reserves
Asset revaluation reserve
The asset revaluation reserve is used to record the fair value adjustment arising on a business combination.
Cash flow hedge reserve
The cash flow hedge reserve is used to record the effective portion of changes in the fair value of derivatives that are designated as
cash flow hedges.
Security-based payment reserve
The security-based payment reserve is used to recognise the fair value of performance rights to be issued under the Deferred
Short-Term Incentive Plans (DSTI) and the Long-Term Incentive Plans (LTI). Refer to note 22 for further details.
Treasury securities reserve
The treasury securities reserve is used to record the acquisition of securities purchased to fulfil the obligations of the Deferred Short-
Term Incentive Plans (DSTI) and the Long-Term Incentive Plans (LTI). As at 30 June 2018, DXS held 1,645,469 stapled securities which
includes acquisitions of 726,280 and unit vesting of 589,953 (2017: 1,509,142).
Financial Report 92
Capital and financial risk management and working capital continued
Note 18 Working capital
a) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with financial institutions and other short-term, highly liquid
investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value.
b) Receivables
Rental, management fees and interest revenue are brought to account on an accruals basis. Dividends and distributions are
recognised when declared and, if not received at the end of the reporting period, reflected in the Statement of Financial Position
as a receivable.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest rate method, less provision for doubtful debts. Trade receivables are required to be settled within 30 days and are assessed
on an ongoing basis for impairment. Receivables which are known to be uncollectable are written off by reducing the carrying
amount directly. A provision for doubtful debts is established when there is objective evidence that the Group will not be able to
collect all amounts due according to the original terms of the receivables.
Rent receivable
Total rental receivables
Distributions receivable
Fee receivable
Other receivables
Total other receivables
Total receivables
c) Other current assets
Prepayments
Other
Total other current assets
d) Payables
Trade creditors
Accruals
Accrued capital expenditure
Prepaid income
Accrued interest
Other payables
Total payables
2018
$m
13.3
13.3
22.9
20.5
6.7
50.1
63.4
2018
$m
16.6
11.2
27.8
2018
$m
21.2
11.7
63.2
20.6
30.1
2.9
149.7
2017
$m
19.4
19.4
26.3
22.0
14.0
62.3
81.7
2017
$m
12.6
0.7
13.3
2017
$m
32.3
12.6
70.0
15.7
26.9
4.6
162.1
Dexus 2018 Annual ReportFinancial ReportFinancial ReportNotes to the Financial Statementscontinued 93
e) Provisions
A provision is recognised when an obligation exists as a result of a past event and it is probable that a future outflow of cash or other
benefit will be required to settle the obligation.
In accordance with the Trust’s Constitution, the Group distributes its distributable income to unitholders by cash or reinvestment.
Distributions are provided for when they are approved by the Board of Directors and declared.
Provision for employee benefits relates to the liabilities for wages, salaries, annual leave and long service leave.
Liabilities for employee benefits for wages, salaries and annual leave expected to be settled within 12 months represent present
obligations resulting from employees’ services provided to the end of the reporting period. They are measured based on
remuneration wage and salary rates that the Group expects to pay at the end of the reporting period including related on-costs,
such as workers compensation, insurance and payroll tax.
The provision for employee benefits for long service leave represents the present value of the estimated future cash outflows, to be
made resulting from employees’ services provided to the end of the reporting period.
The provision is calculated using expected future increases in wage and salary rates including related on-costs and expected
settlement dates based on turnover history and is discounted using the Australian Corporate Bond Index rates at the end of the
reporting period that most closely matches the term of the maturity of the related liabilities. The provision for employee benefits also
includes the employee incentives schemes which are shown separately in note 22.
Provision for distribution
Provision for employee benefits
Total current provisions
2018
$m
245.3
26.4
271.7
Movements in each class of provision during the financial year, other than employee benefits, are set out below:
Provision for distribution
Opening balance at the beginning of the year
Additional provisions
Payment of distributions
Closing balance at the end of the year
2018
$m
241.6
486.4
(482.7)
245.3
2017
$m
241.6
24.5
266.1
2017
$m
198.0
451.7
(408.1)
241.6
A provision for distribution has been raised for the period ended 30 June 2018. This distribution is to be paid on 30 August 2018.
Financial Report 94
Other Disclosures
In this section
This section includes other information that must be disclosed to comply with the Accounting Standards, the Corporations
Act 2001 or the Corporations Regulations, but which are not considered critical in understanding the financial performance
or position of the Group.
Note 19 Intangible assets
Management rights represent the asset management rights owned by Dexus Holdings Pty Limited, a wholly owned subsidiary of DXO,
which entitles it to management fee revenue from both finite life trusts and indefinite life trusts. Those rights that are deemed to have
a finite useful life (held at a value of $3.7 million (2017: $4.1 million) are measured at cost and amortised using the straight-line method
over their estimated remaining useful lives of 15 years. Management rights that are deemed to have an indefinite life are held at a
value of $286.0 million (2017: $286.0 million).
Software is measured at cost and amortised using the straight-line method over its estimated useful life, expected to be three
to five years.
Management rights
Opening balance at the beginning of the year
Amortisation charge
Closing balance at the end of the year
Cost
Accumulated amortisation
Total management rights
Goodwill
Opening balance at the beginning of the year
Impairment
Closing balance at the end of the year
Cost
Accumulated impairment
Total goodwill
Software
Opening balance at the beginning of the year
Additions
Amortisation charge
Closing balance at the end of the year
Cost
Accumulated amortisation
Cost – Fully amortised assets written off
Accumulated amortisation – Fully amortised assets written off
Total software
Total non-current intangible assets
2018
$m
290.1
(0.3)
289.8
294.4
(4.6)
289.8
1.2
(0.1)
1.1
3.0
(1.9)
1.1
18.2
10.9
(5.4)
23.7
47.7
(24.0)
(2.8)
2.8
23.7
314.6
2017
$m
290.6
(0.5)
290.1
294.4
(4.3)
290.1
1.3
(0.1)
1.2
3.0
(1.8)
1.2
15.2
7.3
(4.3)
18.2
36.8
(18.6)
(10.2)
10.2
18.2
309.5
Dexus 2018 Annual ReportFinancial ReportFinancial ReportNotes to the Financial Statementscontinued
95
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of
the acquired subsidiary at the date of acquisition.
Goodwill and management rights with an indefinite useful life are not subject to amortisation and are tested annually for impairment,
or more frequently if events or changes in circumstances indicate that they might be impaired. An impairment loss is recognised in
the Statement of Comprehensive Income for the amount by which the asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment,
assets are grouped at the lowest levels for which there are separately identifiable cash inflows, which are largely independent of the
cash inflows from other assets or groups of assets (cash-generating units).
During the year, management carried out a review of the recoverable amount of its management rights. There was no change in the
carrying value of the management rights in the current year.
The value in use has been determined using Board approved long-term forecasts in a five year discounted cash flow model.
Forecasts were based on projected returns of the business in light of current market conditions. The performance in year five has
been used as a terminal value.
Key assumptions: value in use of management rights
Judgement is required in determining the following key assumptions used to calculate the value in use:
- Terminal capitalisation rate range between 10.0%-20.0% (2017: 10.0%–20.0%) was used incorporating an appropriate risk premium
for a management business
- Cash flows have been discounted at 9.0% (2017: 9.0%) based on externally published weighted average cost of capital for an
appropriate peer group plus an appropriate premium for risk. A 1.0% (2017: 1.0%) decrease in the discount rate would increase the
valuation by $20.0 million (2017: $18.6 million)
Note 20 Audit, taxation and transaction service fees
During the year, the Auditor and its related practices earned the following remuneration:
Audit fees
PwC Australia – audit and review of Financial Statements
PwC fees paid in relation to outgoings audits
PwC Australia – regulatory audit and compliance services
PwC Australia – sustainability assurance
Audit fees paid to PwC
Taxation fees
Fees paid to PwC Australia and New Zealand
Taxation fees paid to PwC
Total audit and taxation fees paid to PwC
Transaction services fees
Fees paid to PwC Australia in respect of the Healthcare establishment
Fees paid to PwC Australia – other
Total transaction services fees paid to PwC
2018
$’000
1,404
138
378
75
1,995
24
24
2,019
30
99
129
2017
$’000
1,357
105
209
85
1,756
20
20
1,776
–
25
25
Total audit, taxation and transaction services fees paid to PwC
2,148
1,801
Financial Report 96
Other Disclosures continued
Note 21 Cash flow information
a) Reconciliation of cash flows from operating activities
Reconciliation of net profit after income tax to net cash inflows from operating activities:
Net profit/(loss) for the year
Capitalised interest
Depreciation and amortisation
Impairment of inventories
Net fair value (gain)/loss of investment properties
Share of net (profit)/loss of investments accounted for using the equity method
Net fair value (gain)/loss of derivatives
Net fair value (gain)/loss of interest rate swaps
Amortisation of deferred borrowing costs
Net (gain)/loss on sale of investment properties
Net fair value gain/(loss) of interest bearing liabilities
Provision for doubtful debts
Distributions from investments accounted for using the equity method
Change in operating assets and liabilities
(Increase)/decrease in receivables
(Increase)/decrease in prepaid expenses
(Increase)/decrease in inventories
(Increase)/decrease in other current assets
(Increase)/decrease in other non-current assets
Increase/(decrease) in payables
Increase/(decrease) in current liabilities
Increase/(decrease) in other non-current liabilities
(Increase)/decrease in deferred tax assets
Net cash inflow/(outflow) from operating activities
b) Net debt reconciliation
Reconciliation of net debt movements:
Balance as at 1 July 2017
Changes from financing cash flows
Proceeds from borrowings
Repayment of borrowings
Repayment of loan with related party
Non cash changes
Movement in deferred borrowing costs
The effect of changes in foreign exchange rates
Changes in fair value
Balance as at 30 June 2018
2018
$m
2017
$m
1,728.9
1,264.2
(13.1)
9.2
0.6
(854.2)
(535.8)
79.9
(2.4)
3.9
(1.7)
(85.8)
–
331.0
8.9
(4.0)
(37.8)
(9.0)
22.5
(24.4)
(16.4)
(1.4)
10.8
609.7
(9.8)
7.8
–
(457.6)
(470.4)
101.0
(9.8)
3.9
(23.4)
(87.5)
(0.5)
237.6
11.4
(1.6)
67.3
(0.4)
20.4
9.2
(15.5)
7.5
3.3
657.1
Interest
bearing
liabilities
Loans with
related
parties
2,697.8
149.0
2,599.0
(1,921.2)
–
–
–
(149.0)
(1.2)
71.2
(85.8)
3,359.8
–
–
–
–
Dexus 2018 Annual ReportFinancial ReportFinancial ReportNotes to the Financial Statementscontinued
97
Note 22 Security-based payment
The DXFM Board has approved a grant of performance rights to DXS stapled securities to eligible participants. Awards, via the
Deferred Short-Term Incentive Plans (DSTI) and Long-Term Incentive Plans (LTI), will be in the form of performance rights awarded
to eligible participants which convert to DXS stapled securities for nil consideration subject to satisfying specific service and
performance conditions.
For each Plan, the eligible participants will be granted performance rights, based on performance against agreed key performance
indicators, as a percentage of their remuneration mix. Participants must remain in employment for the vesting period in order for
the performance rights to vest. The fair value of the performance rights is adjusted to reflect market vesting conditions. Non-market
vesting conditions, including Funds from Operations (FFO), Return on Equity (ROE) and employment status at vesting, are included
in assumptions about the number of performance rights that are expected to vest. When performance rights vest, the Group will
arrange for the allocation and delivery of the appropriate number of securities to the participant.
The fair value of performance rights granted is recognised as an employee benefit expense with a corresponding increase in the
security-based payment reserve in equity. The total amount to be expensed is determined by reference to the fair value of the
performance rights granted.
Key assumptions: fair value of performance rights granted
Judgement is required in determining the fair value of performance rights granted. In accordance with AASB 2 Share-based
Payment, fair value is determined independently using Binomial and Monte Carlo pricing models with reference to:
- the expected life of the rights
- the security price at grant date
- the expected price volatility of the underlying security
- the expected distribution yield
- the risk free interest rate for the term of the rights and expected total security-holder returns (where applicable)
The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to
be satisfied. At the end of each period, the Group revises its estimates of the number of performance rights that are expected to
vest based on the non-market vesting conditions. The impact of the revised estimates, if any, is recognised in profit or loss with a
corresponding adjustment to equity.
a) Deferred Short-Term Incentive Plan
25% of any award under the Short-Term Incentive Plan (STI) for certain participants will be deferred and awarded in the form of
performance rights to DXS securities.
50% of the performance rights awards will vest one year after grant and 50% of the awards will vest two years after grant, subject to
participants satisfying employment service conditions. In accordance with AASB 2 Share-based Payment, the year of employment
in which participants become eligible for the DSTI, the year preceding the grant, is included in the vesting period over which the fair
value of the performance rights is amortised. Consequently, 50% of the fair value of the performance rights is amortised over two
years and 50% of the award is amortised over three years.
The number of performance rights granted in respect of the year ended 30 June 2018 was 263,222 (2017: 274,801) and the fair value of
these performance rights is $9.88 (2017: $10.00) per performance right. The total security-based payment expense recognised during
the year ended 30 June 2018 was $2,585,116 (2017: $2,655,472).
b) Long-Term Incentive Plan
50% of the awards will vest three years after grant and 50% of the awards will vest four years after grant, subject to participants
satisfying employment service conditions and performance hurdles. In accordance with AASB 2 Share-based Payment, the year of
employment in which participants become eligible for the LTI, the year preceding the grant, is included in the vesting period over
which the fair value of the performance rights is amortised. Consequently, 50% of the fair value of the performance rights is amortised
over four years and 50% of the award is amortised over five years.
The number of performance rights granted in respect of the year ended 30 June 2018 was 465,701 (2017: 480,660). The weighted
average fair value of these performance rights is $9.02 (2017: $8.04) per performance right. The total security-based payment expense
recognised during the year ended 30 June 2018 was $3,231,041 (2017: $3,390,504).
Financial Report 98
Other Disclosures continued
Note 23 Related parties
Responsible Entity and Investment Manager
DXH is the parent entity of DXFM, the Responsible Entity of DDF, DIT, DOT and DXO and the Trustee of DOTA and the investment
manager for DITA.
DXH is also the parent entity of DWPL and DWFL, the Responsible Entities of DWPF and HWPF respectively.
DXH is the Investment Manager of DOTA.
Management Fees
Under the terms of the Constitutions of the entities within the Group, the Responsible Entity and Investment Manager are entitled to
receive fees in relation to the management of the Group. DXFM’s parent entity, DXH, is entitled to be reimbursed for administration
expenses incurred on behalf of the Group. Dexus Property Services Pty Limited (DXPS), a wholly owned subsidiary of DXH, is entitled
to property management fees from the Group.
The Group received Responsible Entity and other Management Fees from the unlisted property funds managed by DXS during the
financial year.
Related party transactions
Transactions between the consolidated entity and related parties were made on commercial terms and conditions. All agreements
with third party funds and joint ventures are conducted on normal commercial terms and conditions.
Transactions with related parties
Responsible Entity & asset management fee income
Property management fee income
Rent paid
Responsible Entity fees receivable at the end of each reporting year (included above)
Property management fees receivable at the end of each reporting year (included above)
Administration expenses receivable at the end of each reporting year (included above)
Key management personnel compensation
Compensation
Short-term employee benefits
Post employment benefits
Security-based payments
Total key management personnel compensation
2018
$’000
70,450
24,841
2,760
6,572
2,612
5,552
2018
$’000
9,275
350
3,725
13,350
2017
$’000
62,772
22,446
2,627
5,631
98
5,641
2017
$’000
8,967
717
3,011
12,695
Information regarding individual Directors’ and Senior Executives’ remuneration is provided in the Remuneration Report on pages 24
to 42 of this Annual Report.
There have been no other transactions with key management personnel during the year.
Dexus 2018 Annual ReportFinancial ReportFinancial ReportNotes to the Financial Statementscontinued 99
Note 24 Parent entity disclosures
The financial information for the parent entity of Dexus Diversified Trust has been prepared on the same basis as the Consolidated
Financial Statements except as set out below.
Distributions received from associates are recognised in the parent entity’s Statement of Comprehensive Income, rather than being
deducted from the carrying amount of these investments.
Interests held by the parent entity in controlled entities are measured at fair value through profit and loss to reduce a measurement
or recognition inconsistency.
a) Summary financial information
The individual Financial Statements for the parent entity show the following aggregate amounts:
Total current assets
Total assets
Total current liabilities – payables
Total liabilities
Equity
Contributed equity
Reserves
Retained profits
Total equity
Net profit/(loss) for the year
Total comprehensive income/(loss) for the year
b) Guarantees entered into by the parent entity
Refer to note 15(b) for details of guarantees entered into by the parent entity.
c) Contingent liabilities
Refer to note 15(b) for details of the parent entity’s contingent liabilities.
2018
$m
33.5
5,095.6
75.9
2,192.6
2,127.1
(12.5)
788.4
2017
$m
47.7
4,079.0
84.1
1,518.4
2,126.6
6.9
427.2
2,903.0
2,560.7
468.8
449.4
217.4
215.2
d) Capital commitments
The following amounts represent capital expenditure of the parent entity on investment properties contracted at the end of the
reporting period but not recognised as liabilities payable:
Investment properties
Total capital commitments
2018
$m
102.8
102.8
2017
$m
1.8
1.8
e) Going concern
The parent entity is a going concern and its net current asset deficiency has been addressed in ‘About This Report’.
Note 25 Subsequent events
On 12 July 2018, settlement occurred for the acquisition of 586 Wickham Street, Fortitude Valley, QLD for $86.8 million excluding
acquisition costs.
Since the end of the year, other than the matters disclosed above, the Directors are not aware of any matter or circumstance
not otherwise dealt with in their Directors’ Report or the Financial Statements that has significantly or may significantly affect
the operations of the Group, the results of those operations, or state of the Group’s affairs in future financial periods.
Financial Report 100
The Directors of Dexus Funds Management Limited as Responsible Entity of Dexus Diversified Trust declare that the Financial
Statements and notes set out on pages 58 to 99:
(i) comply with Australian Accounting Standards, the Corporations Act 2001 and other mandatory professional reporting
requirements; and
(ii) give a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance, as represented by the results
of its operations and their cash flows, for the year ended on that date.
In the Directors’ opinion:
(a) the Financial Statements and notes are in accordance with the Corporations Act 2001;
(b) there are reasonable grounds to believe that the Group and its consolidated entities will be able to pay their debts as and when
they become due and payable; and
(c) the Group has operated in accordance with the provisions of the Constitution dated 15 August 1984 (as amended) during the year
ended 30 June 2018.
The Financial Statements also comply with International Financial Reporting Standards as issued by the International Accounting
Standards Board.
The Directors have been given the declarations by the Chief Executive Officer and the Chief Financial Officer required by section 295A
of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
W Richard Sheppard
Chair
14 August 2018
Dexus 2018 Annual ReportFinancial ReportFinancial ReportDirectors’ Declaration Independent Auditor’s Report
101
Financial Report 102
Dexus 2018 Annual ReportFinancial ReportFinancial ReportIndependent Auditor’s Reportcontinued 103
Financial Report 104
Dexus 2018 Annual ReportFinancial ReportFinancial ReportIndependent Auditor’s Reportcontinued 105
Financial Report 106
Dexus 2018 Annual ReportFinancial ReportFinancial ReportIndependent Auditor’s Reportcontinued 107
Financial Report Investor Information
108
Investor Information
We recognise the importance of effective communication with
existing and potential institutional investors, sell-side analysts
and retail investors
Our senior management maintain a strong rapport with the
investment community through proactive and regular investor
engagement initiatives. We are committed to delivering a high
level of transparency and disclosure by:
- Releasing accurate and relevant information to investors
to ensure they can make informed investment decisions
- Providing regular access to senior management through
one-on-one meetings, presentations, property tours,
conferences, dedicated investor roadshows, conference
calls and webcasts
We adopt strong corporate governance principles including
a policy that ensures a minimum of two Dexus representatives
participate in any investor or sell-side analyst meetings and
that a record of the meeting is maintained on an internal
relationship database.
During FY18, our senior management together with the Investor
Relations (IR) team held 275 meetings with investor/broker
groups to discuss the Group’s business strategy, operational and
financial performance. These contacts were undertaken across
a wide range of investor activities including telephone calls,
conferences, roadshows, one-on-one meetings, dinners, investor
briefings and roundtables. We held investor meetings in Australia,
Singapore, Hong Kong, Japan, New York, Montreal, Toronto,
London and Amsterdam. These meetings enabled access to
potential new investors and assisted with strengthening existing
relationships with long-term investors.
Our IR team arranged tours of Dexus properties with investors
and sell-side analysts to increase awareness of the quality of
the portfolio, Dexus’s active asset management approach and
importantly where Dexus creates value.
We regularly commission independent investor perception
studies to gather feedback from the institutional investment
community. These studies involve independent surveys and
interviews with institutional investors and sell-side analysts to
measure investor perceptions on a number of attributes and
report on the findings. The results help the Board and Executive
team understand the investment community’s views and
concerns and assists in the enhancement of the group’s Investor
Relations and communications efforts.
Annual General Meeting
On Wednesday, 24 October 2018, commencing at 2.00pm,
Dexus’s Annual General Meeting (AGM) will be held in Sydney.
Details relating to the meeting, including the venue location will
be provided to all investors in the Notice of Meeting. We invite
you to attend the AGM in person to meet the Board of Directors
and members of the Executive team. The AGM will be webcast at
www.dexus.com for investors who are unable to attend in person.
Distribution payments
Dexus’s payout policy is to distribute in line with free cash flow.
Distributions are paid for the six month periods to 31 December
and 30 June each year. Distribution statements are available in
print and electronic formats and distributions are paid via direct
credit into nominated bank accounts or by cheque.
To change the method of receiving distributions, please use the
investor login facility at www.dexus.com/update
Unclaimed distribution income
Unpresented cheques or unclaimed distribution income can be
claimed by contacting the Dexus Infoline on +61 1800 819 675.
For monies outstanding greater than seven years, please
contact the NSW Office of State Revenue on +61 1300 366 016,
8.30am-5.00pm Monday to Friday, use their search facility at
osr.nsw.gov.au/ucm or email unclaimedmoney@osr.nsw.gov.au
Attribution Managed Investment Trust Member Annual
Statement (previously the Annual Taxation Statement)
An Attribution Managed Investment Trust Member Annual
Statement (AMMA) is sent to investors at the end of August each
year. The statement summarises distributions provided during the
financial year and includes information required to complete your
tax return. AMMA statements are also available online at
www.dexus.com/update
2019 Reporting calendar
2018 Annual General Meeting
24 October 2018
2019 Half year results
6 February 2019
2019 Annual results
14 August 2019
2019 Annual General Meeting
30 October 2019
Distribution calendar
Period end
31 Dec 2018
30 Jun 2019
ASX announcement
Ex-distribution date
Record date
Payment date
21 Dec 2018
24 Jun 2019
28 Dec 2018
27 Jun 2019
31 Dec 2018
28 Jun 2019
28 February 2019
29 August 2019
Please note that these dates are indicative and are subject to change without prior notice.
Any changes in our key dates will be published on our website.
Dexus 2018 Annual Report 109
Go electronic for convenience and speed
Did you know you can receive all or part of your security
holder communications electronically? You can change your
communication preferences at any time by logging in at
www.dexus.com/update or by contacting Link Market Services
on +61 1800 819 675.
Making contact
If you have any questions regarding your security holding or wish
to update your personal or distribution payment details, please
contact the Registry by calling the Dexus Infoline on +61 1800 819
675. This service is available from 8.30am to 5.30pm (Sydney time)
on all business days. All correspondence should be addressed to:
Dexus
C/- Link Market Services Limited
Locked Bag A14
Sydney South NSW 1235
Email: dexus@linkmarketservices.com.au
Dexus is committed to delivering a high level of service to all
investors. If you feel Dexus could improve its service or you would
like to make a suggestion or a complaint, your feedback is
appreciated. Dexus’s contact details are:
Investor Relations
Dexus
PO Box R1822
Royal Exchange NSW 1225
Email: ir@dexus.com
Dexus Funds Management Limited is also a member of the
Financial Ombudsman Service (FOS), an independent dispute
resolution scheme. If you are not satisfied with the resolution of
your complaint, you may refer your complaint to FOS.
Financial Ombudsman Service
GPO Box 3
Melbourne VIC 3001
Phone: 1300 780 808
Email: info@fos.org.au
Investor communications
Dexus is committed to ensuring all investors have equal
access to information. In line with our commitment to long-
term integration of sustainable business practices, investor
communications are provided via various electronic
methods including:
Dexus’s website – www.dexus.com
Other investor tools available include:
Online enquiry – www.dexus.com/enquire
is an easy online enquiry form
Investor login – www.dexus.com/update
enables investors to update their details and download
statements
Subscribe to alerts – www.dexus.com/subscribe
enables investors to receive Dexus communications
immediately after release
Key dates – Provides investors with key events and
reporting dates
LinkedIn – We engage with our followers on LinkedIn.
www.dexus.com/LinkedIn and click follow us
Twitter – We engage with our followers on Twitter
Search Dexus on Twitter and follow us
Facebook – We engage with our followers on Facebook
Search Dexus on Facebook and follow us
Dexus IR App – provides users access to our investor
communications and security price. Download for free from
Apple’s App Store or Google Play
Investor Information Investor Information
110
Additional Information
Top 20 security holders at 31 July 2018
Rank Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
Citicorp Nominees Pty Limited
AMP Life Limited
IOOF Investment Management Limited
HSBC Custody Nominees (Australia) Limited
Bond Street Custodians Limited
Pacific Custodians Pty Limited Perf Rights Plan TST
BNP Paribas Nominees Pty Ltd
BNP Paribas Noms (NZ) Ltd
HSBC Custody Nominees (Australia) Limited
Bond Street Custodians Limited
Netwealth Investments Limited
National Nominees Limited
HSBC Custody Nominees (Australia) Limited – GSCO ECA
20
BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd DRP
Sub total
Balance of register
Total of issued capital
No. of units
511,433,786
209,399,194
94,823,310
45,591,612
26,975,577
14,622,816
10,441,869
4,361,995
3,471,084
3,109,803
2,516,235
1,631,859
1,542,500
1,029,679
896,354
841,288
828,404
740,100
636,424
635,984
935,528,873
81,668,004
% of issued
capital
50.28
20.59
9.32
4.48
2.65
1.44
1.03
0.43
0.34
0.31
0.25
0.16
0.15
0.10
0.09
0.08
0.08
0.07
0.06
0.06
91.97
8.03
1,017,196,877
100.00
Substantial holders at 31 July 2018
The names of substantial holders, who at 31 July 2018 have notified the Responsible Entity in accordance with section 671B of the
Corporations Act 2001, are:
Date
Name
9 Feb 17
Vanguard Group
23 Mar 17
State Street Corporation
22 Aug 17
Blackrock Group
Number
of stapled
securities
87,569,418
57,873,621
79,55,806
% voting
9.05
5.98
7.82
Note: Dexus issued capital changed from 1,017,404,542 to 1,017,196,877 between January and March 2018 following the purchase and cancellation
of 207,665 securities as noted in the on-market buy-back section.
Dexus 2018 Annual Report Class of securities
Dexus has one class of stapled security trading on the ASX with security holders holding stapled securities at 31 July 2018.
Spread of securities at 31 July 2018
Range
100,000 and over
50,000 to 100,000
10,001 to 50,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Securities
946,450,437
2,274,880
16,425,907
16,407,010
30,455,509
5,183,134
%
93.04
0.22
1.61
1.61
2.99
0.51
1,017,196,877
100.00
111
No. of
Holders
63
34
965
2,392
12,807
10,828
27,089
At 31 July 2018, the number of security holders holding less than a marketable parcel of 50 Securities ($500) was 413 and they hold a
total of 2,250 securities.
Voting rights
At meetings of the security holders of Dexus Diversified Trust, Dexus Industrial Trust, Dexus Office Trust and Dexus Operations Trust,
being the Trusts that comprise Dexus, on a show of hands, each security holder of each Trust has one vote. On a poll, each security
holder of each Trust has one vote for each dollar of the value of the total interests they have in the Trust.
Securities restricted or subject to voluntary escrow
There are no stapled securities that are restricted or subject to voluntary escrow.
On-market buy-back
Dexus announced an on-market securities buy-back program on 14 February 2018 for up to 5% of securities. Throughout the year,
Dexus acquired 207,665 securities for $1.9 million at an average price of $9.17 under the buy-back program.
As at the date of this report the buy-back program is still open.
Cost base apportionment
For capital gains tax purposes, the cost base apportionment details for Dexus securities for the 12 months ended 30 June 2018 are:
Date
1 Jul 2017 to 31 Dec 2017
1 Jan 2018 to 30 Jun 2018
Historical cost base details are available at www.dexus.com
Dexus
Diversified
Trust
29.01%
28.96%
Dexus
Industrial
Trust
12.08%
9.53%
Dexus
Office
Trust
54.96%
59.37%
Dexus
Operating
Trust
3.95%
2.41%
Investor Information 112
Key ASX Announcements
22 Jun 2018
Settlement of 140 George Street Parramatta
21 Nov 2017
ASX CEO Connect presentation
19 Jun 2018
Higher market rents contribute to valuation uplift
10 Nov 2017
19 Jun 2018
Distribution for the six months ending
30 June 2018
19 Jun 2018
Appendix 3A – Notice of Distribution
01 Jun 2018
Settlement of the remaining interest of
Southgate Complex Melbourne
Dexus successfully prices long dated US Private
Placement
26 Oct 2017
Appendix 3Z – Final Director’s Interest Notice for
Elizabeth Alexander
25 Oct 2017
BAML Australian Real Estate Conference
24 Oct 2017
September 2017 quarter portfolio update
08 May 2018
Sale of trading property secures FY19
trading profits
24 Oct 2017
2017 Annual General Meeting presentation
and script
01 May 2018
2018 Macquarie Australia Conference
24 Oct 2017
2017 Annual General Meeting results
01 May 2018
March 2018 quarter portfolio update
19 Sep 2017
01 May 2018
On market buy back and cancellation
of securities
17 Apr 2018
Appendix 3E – Daily share buy-back notice
27 Mar 2018
Appendix 3E – Daily share buy-back notice
21 Mar 2018
Settlement of 11 Waymouth Street Adelaide
05 Mar 2018
Daiwa Investment Conference Presentation
28 Feb 2018
31 December 2017 distribution payment and
HY18 Review
14 Feb 2018
HY18 Appendix 4D and Financial Statements
Changes to the Board and Notice of Annual
General Meeting
01 Sep 2017
Appendix 3X- Initial Director’s interest notice for
Nicola Roxon
29 Aug 2017
30 June 2017 distribution payment
17 Aug 2017
Appendix 3B – New issue announcement,
application for quotation of additional securities
and agreement
16 Aug 2017
2017 Final distribution details
16 Aug 2017
Appendix 4E and Financial Reports as at
30 June 2017
14 Feb 2018
HY18 Distribution details
16 Aug 2017
FY17 Annual Results Presentation
14 Feb 2018
HY18 Results release
16 Aug 2017
FY17 Annual Results Release
14 Feb 2018
HY18 Property Synopsis
16 Aug 2017
FY17 Property Synopsis and Debt Summary
14 Feb 2018
HY18 Results presentation
16 Aug 2017
FY17 Property Synopsis spreadsheet
14 Feb 2018
Appendix 3C on market securities buy back
16 Aug 2017
Appendix 3Y – Change of Director’s Interest
Notice for Darren Steinberg
16 Aug 2017
Appendix 4G and 2017 Corporate Governance
Statement
16 Aug 2017
2017 Dexus Annual Report
22 Dec 2017
Sale of 11 Waymouth Street Adelaide
18 Dec 2017
$660 million valuation uplift across Dexus
portfolio
18 Dec 2017
Appendix 3A 1 – Notice of Distribution
18 Dec 2017
01 Dec 2017
Distribution details for six months to
31 December 2017
Appendix 3Y – Change of Director’s Interest
Notice for Darren Steinberg
29 Nov 2017
Implementation of Capital Reallocation Proposal
Dexus 2018 Annual ReportInvestor Information Directory
Dexus Diversified Trust
ARSN 089 324 541
Dexus Industrial Trust
ARSN 090 879 137
Dexus Office Trust
ARSN 090 768 531
Dexus Operations Trust
ARSN 110 521 223
Responsible Entity
Dexus Funds Management Limited
ABN 24 060 920 783
AFSL 238163
Directors of the Responsible Entity
W Richard Sheppard, Chair
Penny Bingham-Hall
John C Conde AO
Tonianne Dwyer
Mark H Ford
The Hon. Nicola Roxon
Darren J Steinberg, CEO
Peter B St George
113
Secretaries of the Responsible Entity
Brett Cameron
Security Registry
Link Market Services Limited
Rachel Caralis
Level 12, 680 George Street
Registered office of the
Responsible Entity
Level 25, Australia Square
264 George Street
Sydney NSW 2000
PO Box R1822
Royal Exchange
Sydney NSW 1225
Phone: +61 2 9017 1100
Fax: +61 2 9017 1101
Email: ir@dexus.com
www.dexus.com
Auditors
PricewaterhouseCoopers
Chartered Accountants
201 Sussex Street
Sydney NSW 2000
Sydney NSW 2000
Locked Bag A14
Sydney South NSW 1235
www.linkmarketservices.com.au
Open Monday to Friday between
8.30am and 5.30pm (Sydney time). For
enquiries regarding security holdings,
contact the security registry, or access
security holding details at www.dexus.
com/update groups including investors,
employees, customers, suppliers and
the community.
Australian Securities Exchange
ASX Code: DXS
LinkedIn, Twitter, Facebook
Dexus now engages with its followers via
LinkedIn, Twitter and Facebook
Investor Enquiries
Registry Infoline: +61 1800 819 675
Investor Relations: +61 2 9017 1330
Email: dexus@linkmarketservices.com.au
www.dexus.com
IR App
Download the Dexus IR App to gain
instant access to the latest Dexus stock
price, ASX announcements, presentations,
reports, webcasts and more.
Independent assurance
In addition to auditing Dexus’s Financial
Statements, PricewaterhouseCoopers
(PwC) has provided limited assurance
over select environmental and social data
within the integrated online reporting
suite covering the 12 months to 30 June
2018. The assurance statement, the
GRI verification report and associated
reporting criteria documents will be
available from the online reporting suite
in September 2018.
The 2018 Annual Report is a consolidated
summary of Dexus’s performance for the
financial year ended 30 June 2018. This
report should be read in conjunction with
the reports that comprise the 2018 Annual
Reporting Suite.
In this report, unless otherwise stated,
references to ‘Dexus’ ‘the group’, ‘we’, ‘us’
and ‘our’ refer to Dexus comprising the
ASX listed entity and the Third Party Funds
Management business. Any reference
in this report to a ‘year’ relates to the
financial year ended 30 June 2018. All
dollar figures are expressed in Australian
dollars unless otherwise stated.
Dexus referred to the Global Reporting
Initiative (GRI) Sustainability Reporting
Guidelines to determine the report’s
boundaries for guidance on identifying
and reporting its material issues,
management approaches and reporting
key performance indicators across
stakeholder groups including investors,
employees, customers, suppliers and the
community.
The 2018 Annual Reporting Suite has been
prepared in accordance with the GRI
Standards: Core option and nominated
indicators have been externally assured.
The GRI index will be provided with the
2018 Dexus Sustainability Performance
Pack at www.dexus.com/2018gri
Dexus’s Funds From Operations (FFO)
is in line with Property Council of
Australia’s definition and comprises
net profit/loss after tax attributable to
stapled security holders calculated in
accordance with Australian Accounting
Standards and adjusted for: property
revaluations, impairments, derivative and
foreign exchange (FX) mark-to-market
impacts, fair value movements of interest
bearing liabilities, amortisation of tenant
incentives, gain/loss on sale of certain
assets, straight-line rent adjustments,
deferred tax expense/benefit, rental
guarantees, coupon income and
distribution income net of funding costs.
Report scope
The Annual Report covers financial
performance at all locations.
Environmental data only includes
properties under the Group’s operational
control as defined under the National
Greenhouse and Energy Reporting System
(NGER Act). All resource performance
figures in this report display consumption
and GHG emissions on an intensity
(per square metre) basis. Absolute
consumption and additional information
is provided in the 2018 Sustainability
Performance Pack available from the
online reporting suite at www.dexus.com
Investor Information years
being listed
as Dexus